Beef producers in the USA have enjoyed almost a year of factory prices for cattle hovering around the equivalent of €6/kg on a carcase with a 60% kill out.

These are fantasy prices for an Irish beef producer, and are also out of kilter with the other major beef exporting countries in the world, where farm gate prices have been weak for the past year.

The main driver for sustained high beef prices is the fact that the US cattle herd at the start of this year was at its lowest level since 1951 according to the USDA.

While the tight cattle supply has driven farm gate value, it has had the opposite effect on factory profits.

Tyson Foods

Tyson Foods, which is one of the big four processors that between them control 85% of US cattle slaughter, have this week revealed large losses in its beef business for the first half of their trading year ending on 30 March.

The operating loss on beef for the first six months was $240m (€222m) on a turnover of almost $10bn (€924m). While beef processing is the largest category, Tyson is also a major pig and poultry processor and has a substantial prepared foods category.

Performance in the pigmeat category was relatively weak, with an operating margin of $38m (€35m) on a turnover of $3bn (€2.8bn), but much healthier in the poultry processing and prepared food categories.

Operating profit for the half year in poultry was $335m (€310m) on a turnover of $8.1bn (€7.5bn), while prepared foods returned an operating margin of $473m (€438m) on a $4.9bn (€4.5bn) turnover.

Tyson’s international and “other” business returned an operating loss of $62m (€57m).

Overall company performance was an operating margin of $543m (€503m) on a turnover of $26.4bn (€24.4bn) for the first half of the 2024 trading year.

Outlook

Tyson doesn’t expect any significant improvement in its beef category in the second half of the year, indicating that it expects an adjusted operating loss between $100m (€93m) and $400m (€370m) for the full year.

The other divisions of the business are forecast to be profitable and Tyson is guiding an adjusted operating income between $1.4bn (€1.3bn) and $1.8bn (€1.7bn) for the full financial year.

Market situation

While the Tyson results are the most recent data, they aren’t unique as all the published quarterly updates from the other major US beef processors have also been reporting negative margins.

We have already referred to the sustained strong US cattle price over the past year, and this has combined with weak export markets to create something of a perfect storm for the industry.

According to data from the US Meat Export Federation, see figure 1, export values per tonne have been stagnant over the past year until last month when there was a slight increase.

The US is unique in that it both imports and exports in excess of 1m tonnes annually. They import lower value meat for processing and export high value steak meat.

The main export markets for US beef in the first quarter of 2024 were Japan, South Korea, Mexico and China/Hong Kong.

The biggest competitor for US beef in Japan and South Korea is Australia, where beef output has surged over the past year with the completion of herd rebuilding, following a prolonged drought.

Meat and Livestock Australia data shows that beef exports have surged, up by 30% in the year to the end of April 2024 at 1.079m tonnes.

Japan was the largest market over the past twelve months, taking 206,000 tonnes and South Korea the fourth largest, taking 172,571 tonnes, both taking 7% more than for the previous twelve-month period.

Meanwhile, US Meat Export Federation data shows that US beef sales to both these markets has been in decline for the first quarter this year, down 10% to Japan at 62,692 tonnes and down 8% to South Korea at 58,968 tonnes.

As well as increased volumes of Australian beef being available for export, it also has an exceptionally competitive price, especially when compared to the US farm gate cattle price.

Bord Bia data shows that for the week ending 20 April, the price for a steer similar to an R3 has fallen to the equivalent of just €2.55/kg, down 40% from €4.40 at the same time last year, and less than half what US factories are paying for cattle.

While Brazil don’t export beef to Japan or South Korea, they are the top supplier to China, the world’s largest importer of beef and the fourth largest export market for the US, taking 51,122 tonnes in the first quarter of 2024.

China Customs data for the first quarter of this year shows that they increased import volumes from Brazil by 50,700 tonnes to 330,747 tonnes. However, while the volume increased, the value per tonne fell to €4,271 compared with €4,877 in the same period last year.

Comment

Prices paid to Irish farmers for cattle have never come close to the €6/kg that has been paid in the US though the prices in Britain have averaged above €5.70/kg across all steer grades in the first quarter of 2024.

With most factories that process cattle in Ireland and the UK not publishing accounts, we don’t have a similar insight to their financial performance as we have with Tyson Foods.

However, what we do know is that with cattle purchase being by far the largest single operating cost for any beef processor, then the higher (or lower) it is, the greater the impact on profitability.

The cost of cattle processed in Ireland is extremely competitive for factories compared with those sourced in the UK which is also the main export market, taking half our total exports.

We can also conclude that growing the market for beef markets in Asia will be an uphill struggle given the exceptionally low prices being paid for cattle in Australia alongside the increased numbers available.