US Wholesale Beef Prices Drop to 19-Month Low on Drought-Driven Strong Cattle Slaughter

US choice beef wholesale prices dropped in October (USDA estimate) to their lowest level since March 2021, down 2% month-over-month (MoM) and 13% year-over-year (YoY).

US wholesale beef prices in 2022 have traded below 2021 levels since April, and the gap remains considerably wide.

One of the reasons behind the price decline is that beef supply has been growing on the back of faster-than-expected cattle slaughter, which in turn has been driven by widespread drought in the US.

Source: Tridge and USDA

In fact, this October, the USDA upgraded its 2022 US beef production forecast on the back of expectations of a faster-than-expected pace of cattle slaughter during the end of the year, driven by the aforementioned drought. The USDA upgraded its 2023 production forecast as well. The USDA now expects production to be 12.76 billion kg in 2022 and 11.96 billion kg in 2023.

From January through September 2022, the US produced 9.63 billion kg of beef, which represents an increase of 1.9% compared to the same period in the previous year. The increase in beef production is practically in the same line as cattle slaughter, which totaled 25.83 million head, up by 2% compared to the same period last year. The average weight of live cattle has remained virtually unchanged in Jan-Sep 2022 compared to the previous year, at 1,366 pounds. However, it has shown an upward trend in the past few months, rising from an average of 1,339 pounds in June to 1,364 pounds in September.

It’s worth noting that the production increase has also reflected an increase in US exports. In fact, US beef and veal exports from January through August 2022 stood at 1,096 thousand mt, 6% above exports during the same period in 2021. It's also worth noting that August 2022, with 146.8 thousand mt, was the month with the highest US exports of this product on record, albeit only up YoY by 0.4% YoY.

Nonetheless, the strong cattle slaughter is diminishing herd numbers, which will eventually lead to less beef production and more imports to supply local demand. In fact, the USDA expects 2023 US beef production to fall by 6% YoY to 11.96 billion kg. It also expects US beef imports during H2 2023 to increase by 13%.

So, the long-term effect of this strong cattle slaughter will eventually lead to higher prices as the domestic herd numbers decline, to be seen in 2023.