In a dramatic shift for the United States meat industry, record levels of beef imports are sweeping the nation as cattle herd numbers plummet to historic lows. This trend, exacerbated by years of persistent drought, is significantly impacting domestic beef prices and squeezing profit margins for major meat companies, including industry giant Tyson Foods.
The drought-induced strain on the US cattle population has triggered a surge in domestic beef prices. Consequently, American meat companies are increasingly turning to importing cheaper beef, while simultaneously grappling with a decline in interest from foreign buyers such as China, Japan, and Egypt. The United States Department of Agriculture (USDA) is projecting a drop from its second-place position as a global beef exporter to fourth place this year, reflecting a 14% decrease in beef exports from 2022 to 2021, with the volume expected to reach a mere 3 billion pounds. This would mark the lowest point since the disruptions caused by the COVID-19 pandemic in 2020.
The USDA forecasts a further downturn in 2024, anticipating an eight-year low with beef exports plummeting to 2.8 billion pounds. Major US beef exporters like Tyson, Cargill, and JBS are grappling with the confluence of escalating prices and a strengthening US dollar, rendering American products less competitive on the global stage, according to Pete Bonds, a Texas-based cattle producer.
Tyson Foods, in particular, is facing a challenging scenario, with the declining demand and rising costs of cattle expected to swing its beef business from an 8% positive margin a year ago to a negative 1.1% this year, as indicated in the upcoming fourth-quarter earnings report. Margins stood at 0.2% in Tyson’s second quarter and 1.6% in the third, underscoring the severity of the situation.
To counterbalance the decline in US beef exports, the meet industry is turning to higher imports, leveraging the lower cost of foreign beef to bolster profit margins. Imports from countries such as Australia and New Zealand are being blended with US beef to create more affordable products, particularly in the case of hamburgers. The USDA’s monthly report has revised upward its forecast for US beef imports in 2023 and 2024.
Further diversifying its sources, the US is set to reopen its doors to Paraguayan beef next month for the first time in 25 years, adding to the array of countries contributing to the surge in beef imports. Imports from January to September of this year have already risen by 6% compared to the previous year, with Australian shipments soaring by 49%. The US market is poised to witness a record import of 3.7 billion pounds in 2023, surpassing the previous high of 3.4 billion pounds in 2015. Brazil is anticipated to become the leading importer, contributing an additional 4.2 billion pounds of beef in 2024.
These heightened imports are instrumental in mitigating the potential surge in domestic retail prices, which are already reaching unprecedented levels. Moreover, the influx of live cattle imports from Mexico into US feedlots is contributing to increased beef availability. While US ranchers are gradually rebuilding the domestic herd, the process is anticipated to be slow, limiting the scope for increased exports.
Faced with a dwindling domestic supply and soaring US beef prices, Tyson is making strategic adjustments, including downsizing and the closure of two plants in Florida and South Carolina, resulting in the loss of hundreds of jobs. Despite these challenges, the US is poised to intensify its reliance on imports to alleviate high beef prices and address the scarcity of cattle inventories. Therefore, as domestic demand for beef wanes and the export decline persists, increased beef imports emerge as the primary relief and margin-supporting strategy for companies in the meat industry such as Tyson Foods in the foreseeable future.
Source: Reuters
