US – beef demand reaches new heights

// International Trade

Following the recent analysis of the Chinese meat protein market by B+LNZ's Economic Service team, this time they look into the US market and the key influencers impacting demand for New Zealand beef.

butcher selling meat

It’s summer in the US and beef is a preferred choice for backyard barbeques. Demand for beef in the US has been rising following the pandemic but has reached new highs in recent months. 

In the US, imported beef prices are at historical highs, driven by the strong demand and limited availability of imported beef. This is good news for New Zealand beef farmers and exporters; adding further positivity to what is already a strong global beef market, fuelled by tight beef supplies and insatiable Chinese demand.

Peak demand season for beef

Summer in the US is the peak demand season for beef. It’s commonly referred to as the “grilling” season and what’s ideal for grilling? Beef. So seasonal demand is strong. Ground beef, what most of New Zealand’s beef exports to the US are turned into, is a key component of this seasonal demand. 

This summer, the seasonal lift in demand has been intensified by strong recovery in the US economy following COVID-19 and a swift rollout of the vaccination programme. Foodservice sector demand has rebounded rapidly, and US consumers are enjoying high incomes following extensive stimulus packages. 

US consumer spending on food in May lifted to a record high, surpassing the pre-COVID high seen in February 2020.

Consumer demand is strong, but there is also fierce competition for product between the rebounding foodservice sector and a retail sector that has grown significantly post pandemic. 

Both foodservice buyers and retailers are scrambling to secure product, caught unprepared for the rapid recovery from COVID-19. 

Increase in US exports and prices

The US domestic market is also having to compete with global demand as a larger proportion of beef production being exported. 

In 2021, beef exports are forecast to account for 11 per cent of total US beef production, up from 7 per cent in 2020. The export growth is largely underpinned by Chinese demand, with China’s share of US beef exports lifting from just 1 per cent of total exports for March 2020, to 11 per cent in 2021.

Wholesale and retail beef prices in the US have been lifting steadily for the last two months. Data from the USDA show prices for a range of beef cuts have lifted back to levels seen at the peak of the COVID-19induced shortages in 2020 and are sitting well above historical averages. A similar trend is apparent in both pork and poultry. So far, the data shows that consumer spending, both at retail and foodservice outlets, has not been deterred by the high prices.

Imported beef prices at historic highs

Imported beef prices are also at historical highs, with the US price per pound for New Zealand manufacturing cow and bull meat prices up 25 per cent on the five-year average. 

New Zealand manufacturing beef exports to the US are an essential component in the ground beef recipe. Lean 90CL or 95CL1 is blended with US fatty trimmings – typically 50CL – from grain-fed cattle. As such, imported lean beef has a complementary relationship with US grain-fed production.

The robust demand has caught the US beef market at a period of challenging supply, shifting supply chain dynamics and a shortage of labour. These factors have all added fuel to the surging prices and are contributing to lifting global beef prices, a favourable outcome for New Zealand beef exports.

The current surge in US domestic beef prices differs from that witnessed during the pandemic in 2020, when a shortage of meat drove the price rise.

This year, US domestic beef supply is plentiful. For the first four months of 2021, fed cattle production tracked significantly above historical averages, driven by higher cattle weights. While dairy cow slaughter is down for the same period, beef cow slaughter is well up on historical averages, driven by severe drought conditions impacting key beef producing states.

Reports from industry commentators, Steiner Consulting Group, suggest that one of the dominant drivers of surging beef prices, is that the US meat processing industry has not been able to keep up with the strong demand throughout the supply chain due to a shortage of labour and periods of disruption to capacity, including severe weather and cyber-attacks. 

The increase in fed cattle production is of benefit to the New Zealand beef industry, as it increases the need for imported lean beef, such as what is exported from New Zealand as 90CL or 95CL.

Imported beef is proving scarce this year, with Australia continuing to rebuild herds post drought, new quota limits on Argentinian beef exports and uncertainty around continued growth in Brazilian export capacity.

Beef imports to the US for the first six months of 2021 were eight per cent lower than in 2020 and five per cent lower than in the same period of 2019. Lower imports from Australia and strong Chinese demand are drivers of the decline in US beef imports and both are expected to keep the supply of imported beef in the US tight for the remainder of 2021, providing support for strong imported beef prices.

The impacts on New Zealand’s beef exports

New Zealand export data for May 2021 illustrates how the buoyant US market conditions are flowing through to New Zealand beef export returns.

Chilled beef exports to the US surged in both April and May, reflecting the improvement in the foodservice sector and the increasing appetite of US consumers for high-value beef. 

In May, chilled beef exports lifted 90 per cent on May 2020, which might not be surprising given demand was depressed by the global COVID-19 pandemic. But, New Zealand’s chilled beef exports to the US in May 2021 were more than double the five-year average for May. The increase was accompanied by a five per cent lift in average export value year-on-year and a 15 per cent lift on the five-year average. This follows a similar trend in April.

The impacts on New Zealand’s lamb exports

The swift recovery of the US foodservice sector is also proving beneficial for New Zealand lamb exports.

A significant proportion of New Zealand lamb exported to the US is destined for the foodservice sector. The severe disruption to this sector because of COVID-19 resulted in a 20 per cent drop in lamb export volume to the US and a 10 per cent drop in average value for the 2019-20 export season.

New Zealand trade statistics for May show lamb exports to the US were up 10 per cent on the five-year average and the average export value lifted 8 per cent. Like beef, the volume of chilled lamb exports to the US was also up (+20%) on the five-year average as diners re-enter the restaurant scene, however the average export value of chilled lamb is still below the five-year average as it takes some time to recover from the large blow experienced because of COVID-19.

A positive outlook forecasted

Looking forward, US demand for meat protein is expected to remain high through 2021 as demand from the recovering foodservice sector continues to challenge available supplies. Demand from China is expected to continue to provide a competitive pressure to prices. Export returns for New Zealand beef and lamb will be supported by the buoyant market fundamentals. While farmgate lamb prices are already reflecting the impact of strong global demand, beef farmgate prices have been pressured by supply factors such as an unexpectedly high number of cattle being processed so far this year.

A strong NZD and continuing logistical issues are likely to remain obstacles in 2021, however, it is expected that the optimistic global beef outlook will begin to be reflected at the farm gate, with a positive start to new season pricing.

About B+LNZ’s Economic Service team

This information is collected by B+LNZ’s Economic Service who have been operating for 70 years. Its role is to provide Independent, Authoritative and Credible Information for the sector to help inform policy and trade decisions. In addition to its annual Sheep and Beef Farm Survey, which collects over 2000 pieces of data from a randomly selected group of volunteer farmers across the country, the Economic Service monitors trade policies and markets and market developments.

Last year, the Economic Service celebrated its 70th anniversary. Read full media release.