Consequently, the beef production forecast for 2020 was lowered by 255 million pounds from the previous month’s forecast to 27.4 billion pounds. However, production is expected to remain above last year’s by about 1%. Expected steer and heifer slaughter is reduced from the previous month. However, it is partially offset by higher expected dressed weights and higher non-fed cattle slaughter.

In the first two months of the year, the pace of cattle slaughter was almost 4% faster than the same period last year, a pace that appears to have continued to climb through March. Also, based on the USDA, Agricultural Marketing Service weekly slaughter report for the week ending March 28, 2020, steer and heifer average cattle carcass weights are up 27 pounds from year-earlier levels. This represents an increase of about 4% and reflects a mild winter compared to last year. With a faster pace of slaughter, combined with dressed weights at levels not seen since 2016, first-quarter 2020 is expected to be 8% above last year and to set a record for the quarter.

One impact of COVID-19 on beef demand has been a shift in the types of demand. To the extent that the food service and hotel sector has been affected by restaurant closures or service limitations and the decline in travel, demand from that sector has declined. However, retail demand has increased as people have been told to remain at home. The impact has been felt in both the quantities and cuts of beef demanded. Concurrently, the slaughter sector itself has been faced with challenges as it adjusts to the impacts of COVID-19 on its day-to-day operations.

Second-quarter production forecast was reduced but remains up by 1% from 2019. This reduction is based on an expected slower pace of fed cattle slaughter, in part as the slaughter sector responds to the impacts of COVID-19. Feedlots may also slow the pace of marketings in the short term as they are less willing to accept low prices currently offered. This reduction in the slaughter pace forecast was partially offset by higher anticipated dressed weights as cattle remain on feed longer.

Beef production in the third and fourth quarters was reduced on the expectation that feedlot operators will place fewer steers and heifers in feedlots in the first half of the year as they face lower returns and economic uncertainty. With lower expected placements in the first half of 2020, expected fed cattle slaughter in the second half of 2020 is also forecast lower. However, increased non-fed cattle slaughter and higher average dressed weights will partly offset the reduction in fed cattle.

Weaker beef demand and slaughter reduction to pressure prices

Customer demand in the hotel, restaurant and institutional service (HRI) sector has diminished since stay-at-home orders were put in place across much of the U.S. With higher sales at the retail level in March reflecting consumers “stocking up” and retailers refilling depleted coolers, sales are expected to slow down as these demands are satiated. Currently, overall slaughter rates have been affected as packing plants adjust to the impacts of COVID-19 on their operations. Slower demand and potentially slower rates of slaughter are expected to pressure cattle prices. However, prices are expected to improve through the rest of the year but remain well below year-ago levels.

The first-quarter 2020 average fed steer price for the 5-area marketing region is estimated at $118.32 per hundredweight (cwt), down about 6% from last year. Weekly fed steer prices for the 5-area marketing region have declined since the beginning of the year, moving counter-seasonally to a quarter low of $108.84 per cwt for the week ending March 15, then rebounding briefly.

In early second quarter, fed cattle prices declined further to $105 per cwt and will reflect seasonally increasing supplies of market-ready cattle in feedlots at heavier than year-ago weights at a time the beef packing sector is adjusting to the impacts of COVID-19. Based on weaker expected beef demand and a slower anticipated pace of cattle slaughter, the 2020 annual price forecast was lowered by $3 to $111 per cwt.

As fed cattle prices fall and feedlot margins decline, feedlot operations will likely reduce placements and reduce bids for feeder calves. Relatively good pasture conditions might allow producers to keep cattle on grass and other pasture until prices begin to recover. To that end, these calves will likely be placed in feedlots at heavier weights, and expected average slaughter weights will be higher. Recent price data and expectations of weaker feedlot demand underpins a decrease in this year’s expected feeder calf prices. This month’s annual price forecast for 2020 was lowered by $10 to $132 per cwt.

Beef imports up in February

February’s beef imports rose to 230.6 million pounds, 7.1% above a year ago. The bulk of the increase from last year is in shipments from Australia. The higher year-over-year imports from Australia, Nicaragua, Mexico and New Zealand more than offset declines in beef imports from other sources in February 2020. Year-over-year, over 16 million pounds more beef was imported from Australia this February, exceeding beef imports last year by 53%. Beef imports from other major sources such as Nicaragua, Mexico and New Zealand were also up year-over-year by 2.5, 2.3 and 0.61 million pounds, respectively (see Table 1).

However, there were also some reductions in shipments to the U.S. While Canada was the largest beef supplier to the U.S. at 57 million pounds, it also had the largest reduction in beef shipments to the U.S. in February 2020, over 7 million pounds less than a year earlier. U.S. beef imports were also down from Brazil by 1.8 million pounds and from Uruguay by 1.3 million pounds.

Based on the pace of shipments from Oceania, higher U.S. beef imports are anticipated in the first quarter. The 2020 first-quarter forecast was raised by 25 million pounds from 720 million to 745 million pounds.

Beef exports down on global demand

U.S. beef exports were reported at 257 million pounds, up 21% in February 2020. Exports to the seven largest trading partners for exported U.S. beef are summarized in the table. Bolstered by robust shipments to Japan and South Korea, U.S. beef exports in February were a record high for the month. Exports to Japan and South Korea accounted for over half of U.S. total beef exports in February 2020. Beef exports to Canada, Taiwan and Vietnam were also noticeably higher and contributed to the overall year-over-year U.S. growth.

Conversely, there were a few major markets in which less beef was exported in February 2020 than in the previous February. Exports to Hong Kong in February were 26% less than a year ago, the lowest beef export to Hong Kong since 2012. Exports to Mexico were 8% lower than last year. Weakness in the Mexican economy and the peso likely limited Mexico’s imports.

The 2020 beef export forecast for the first quarter was unchanged at 735 million pounds. However, the forecasts for the second, third and fourth quarters were revised down to 780 (-35 million pounds), 830 (-20 million pounds) and 815 (-50 million pounds), respectively. The forecast for beef exports was lowered, partly due to global economic weakness and the relative strength in the U.S. dollar.

Analyst Christopher Davis assisted with this report.

Russell Knight is a market analyst with the USDA – ERS. Email Russell Knight.