The United States is witnessing an unprecedented surge in beef imports this year as the domestic cattle herd dwindles to historic lows. The annual shift is placing immense pressure on leading meat companies such as Tyson Foods, with rising domestic beef prices resulting from years of persistent drought.
The prolonged drought conditions have taken a toll on the US cattle population, driving up domestic beef prices and incentivizing American companies to seek cost-effective alternatives abroad. Paradoxically, the surge in prices has dissuaded foreign buyers, including major players like China, Japan, and Egypt, from purchasing US beef. Consequently, the US Department of Agriculture (USDA) anticipates a drop from the second-largest beef exporter to the fourth-largest this year.
According to USDA projections, US beef exports are expected to plummet by 14% from 2022 to 2021, reaching a staggering 3 billion pounds, the lowest point since the COVID-19 pandemic in 2020. The forecast foresees an eight-year low in 2024, with exports expected to dip to 2.8 billion pounds.
Major US beef exporters, including Tyson, Cargill, and JBS, are grappling with the dual challenges of soaring prices and a strengthening US dollar, diminishing their competitiveness in the global market. Texas-based cattle producer Pete Bonds notes that the combination of decreasing demand and rising cattle costs is likely to swing Tyson’s beef business from an 8% positive margin a year ago to a negative 1.1% this year.
Tyson’s quarterly earnings report, due on Monday, is expected to reveal a stark contrast from a year ago, with margins declining from 0.2% in the second quarter to 1.6% in the third. The decline in beef exports is being counteracted by increased imports, as the lower prices of foreign beef enhance profit margins. Imports from countries like Australia and New Zealand are being blended with US beef, particularly in the production of hamburgers.
The USDA has adjusted its forecast for US beef imports in 2023 and 2024, with expectations of a record import of 3.7 billion pounds in 2023, surpassing the previous high of 3.4 billion pounds in 2015. Additionally, the US is set to resume importing Paraguayan beef next month for the first time in 25 years.
From January to September of this year, US imports increased by 6%, with Australian shipments rising by 49%. Forecasts indicate that Brazil is poised to become the leading import country, contributing an additional 4.2 billion pounds of beef in 2024. These imports are crucial in curbing the potential surge in domestic retail prices, which are already at record highs.
Moreover, imports of live cattle from Mexico into US feedlots are bolstering beef availability. Despite efforts by US ranchers to rebuild the domestic herd, the process is slow, constraining export capabilities. Faced with diminishing supplies and soaring domestic beef prices, Tyson Foods is responding by downsizing, announcing the closure of two plants in Florida and South Carolina, resulting in the loss of hundreds of jobs.
In conclusion, the dwindling domestic cattle herd has spurred a reliance on record beef imports, marking a crucial strategy for mitigating the challenges faced by the US meat industry in the current landscape. As the US experiences a decline in beef demand and a downturn in exports, it is apparent that increased beef imports will serve as the primary relief and margin-supporting strategy for companies like Tyson Foods in the foreseeable future.
Source: Reuters
