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CHAPTER 1 - US LIVESTOCK AGRICULTURE
1.1 Introduction
Meat and dairy products are consumed at high levels by the 290 million US population. The country is the world's biggest consumer of both beef and poultry meat, and is second only to China in terms of pork consumption.
Domestic demand alone is sufficient to support livestock production on a massive scale, but US producers are also major players in global meat markets, adding to the size of industries in major segments such as beef, pork and poultry meat output. The value of US livestock production is forecast to exceed $100 billion in 2004, while receipts from livestock exports alone totalled $9 billion in 2003.
Export trade has been hit recently by disease outbreaks – notably the case of bovine spongiform encephalopathy (BSE) discovered in Washington state during December 2003, but also outbreaks of avian influenza in Texas. Shipments of beef in particular will be down sharply on year-earlier figures in 2004 as a result, but actions taken by the US Department of Agriculture since the case was confirmed should eventually see trade levels recover. And with the 2002 Farm Bill set to pump an additional $73 billion of federal subsidies into the US farm sector over the next 10 years, prospects for incomes in the livestock sector remain generally good.
Massive output at high levels of efficiency is dependent, of course, on substantial inputs, including products for the prevention, control and treatment of livestock diseases. US food animal production generated demand for animal health product sales worth close to $4 billion in 2003, with products for use in cattle alone worth almost $2 billion.
1.2 Cattle production
The US cattle herd totalled 94.9 million in January 2004 – down by a modest 1% on year-earlier figures, but almost 9% lower than the peak of 103.8 million recorded in 1996. Contraction has been witnessed in both the beef and dairy sectors since then, with beef cow numbers falling by around 7% and dairy cow numbers some 4% lower than 1996 levels.
Table 1.1: US cattle numbers, 2000-2004 1
1January census.
Source: United States Department of Agriculture, USDA.
The cyclical downturn in cattle numbers that began in 1996 has been prolonged by drought conditions that resulted in high slaughter levels, delaying herd rebuilding. Ironically, however, the tough conditions endured by the industry in the early part of this decade may have helped to soften the blow of BSE. For while beef exports will be down dramatically on year-earlier figures in 2004, domestic demand has remained strong, and with supplies from a reduced national herd relatively tight, prices have been maintained at high levels.
US authorities have announced a succession of measures designed to tighten up BSE control and surveillance measures since December 2003. They include a 10-fold increase in the number of animals tested for the disease under a 12-18 month programme begun in June 2004. United States Department of Agriculture (USDA) officials have said it is 'entirely possible' that additional BSE cases will be discovered as a result of the massive increase in testing. This could have further implications for export trade, but providing that new cases are isolated and can be traced effectively, domestic confidence in US beef appears unlikely to crumble as it did in several European countries.
1.2.1 The beef sector
The US is the world's biggest producer of beef, with output exceeding 12 million tonnes in 2003. Domestic beef consumption totalled 12.3 million tonnes during the year, and the country is traditionally a net importer in the sector. Export markets for US beef have collapsed in the wake of the BSE case confirmed in December 2003, and USDA forecasts published in March 2004 predicted that shipments would fall from over 1 million tonnes to less than 200,000 tonnes in 2004. Mexico reopened its borders to US beef towards the end of the first quarter, but key export markets in Asia are likely to remain closed until late in the year. The discovery of additional BSE cases under expanded testing programmes could have further implications for export trade.
Table 1.2: US beef/veal production, consumption and trade, 2000-2004
p = provisional estimate; f = forecast.
Source: USDA.
The confirmation of BSE in Canada earlier in 2003 had a profound impact on the market there, since exports were previously equivalent to around half of total production. The domestic market was flooded following the sudden halt in exports, pushing prices down sharply. By contrast, exports were equivalent to less than 10% of total US production in 2003. With domestic demand holding up well, US producers have escaped relatively unscathed to date.
The beef production cycle is a relatively lengthy one at 3-4 years. Typically, weaned calves are sold by cow/calf operators to stocker units, which run animals at pasture until they have reached around two-thirds of their intended slaughter weight. In turn, stockers ship cattle to feedlots for a final fattening phase that may last anywhere from 110 days to 250 days. Animals are shipped to feedlots in greatest numbers during the autumn months, at the end of the pasture growing season. About 30 million animals pass through the US feedlot production system every year.
The number of cattle and calves on feed at the January 2004 census totalled 13.8 million, up sharply (by around 4%) on year-earlier figures, but similar to totals recorded in January 2002 and still below the recent peak of 14.2 million recorded in 2001. Statistics published by the USDA in May indicated that inventories on feedlots with a capacity of 1,000 head or more were down by 2% on year-earlier figures, and that shipments to feedlots in April were as much as 14% lower than in 2003. At 1.9 million, the number of fed cattle sent for slaughter during April was also down on year-earlier figures, by around 5%.
Table 1.3: US cattle and calves on feed, 2000-20041
1January census.
Source: USDA.
While average slaughter weights are expected to be significantly higher in 2004, these figures illustrate the tight nature of supply in the US beef sector, where herd size has been in decline now for eight straight years. Prices may soften in the second half of 2004 if key export markets remain closed to US beef – a scenario that may at last prompt more producers to begin rebuilding herds.
Beef animals may be moved three or four times on their way through the generally intensive production system. Along with the subsequent mixing of animals from different environments, these are key periods of demand for animal health products, with sales generated by vaccination and parasite control programmes as well as the widespread administration of antibiotics to prevent and control shipping-related disease outbreaks.
The feedlot sector is the most intensive consumer of animal health products. Vaccines, antibiotics and antiparasitic treatments are administered routinely to a substantial proportion of animals on arrival at feedlots, while the intensive growing regime between arrival and sale for slaughter includes the regular administration of nutritional and performance-enhancing additives in feed rations, and the almost universal use of hormone-based growth implants. Further use of therapeutic antibiotics to treat clinical disease outbreaks, and of antiparasitics, is also common.
While the breeder and stocker sectors of the US beef production industry remain fragmented, the feedlot sector is increasingly concentrated in terms of both geography and market share. Five states (Texas, Kansas, Nebraska, California and Oklahoma) account together for around 60% of total US feedlot production, while the industry's biggest feedlot operator, Cactus Feeders, operates nine lots with an aggregate one-time capacity of more than 500,000 head. Cactus also runs its own stocker ranches, but levels of integration across the industry as a whole remain limited.
1.2.2 The dairy sector
In common with many other developed markets, the US dairy sector has witnessed substantial increases in efficiency and productivity over the past 20-30 years. This has enabled rising output from a shrinking dairy herd, driving a period of rapid change in the structure of the industry.
Dairy cow numbers have declined by 20% in the past 20 years, and fell back around 9 million during 2003 according to results of the January 2004 census. Milk output rose by 25% over the same period, however, as more producers embraced new technologies and production systems.
Long-term trends towards more concentrated, efficient production continued through the 1990s, with milk production rising by almost 12% between 1991 and 2001, while milk cow numbers declined by a further 7.2%. Productivity per cow increased by almost 21% during the 1990s. Average herd size has risen from about 30 in the early 1980s to a current level of around 100, with dairy farm numbers almost halving in the past decade alone. Data published by the National Agricultural Statistics Service (NASS) indicate a total of 70,410 licensed dairy herds in the US during 2003 – down by almost 4,000 on year-earlier figures and equivalent to just 54% of the 1992 total, when the US boasted over 131,000 dairy farms.
Table 1.4: Dairy cow numbers, output and productivity, 1999-2003
Source: USDA.
(million head)
('000 tonnes)
('000 tonnes)
Just over one-third of cows' milk production was consumed in fluid form during 2003. Fluid milk consumption has been flat since the end of the 1990s, however, while output has continued to rise (up by 4.4% between 1999 and 2003). Rising demand for other dairy products, including butter and cheese, ensured until recently that milk prices remained at reasonable levels. Prices tumbled sharply through 2002 and 2003, however, as output continued to rise, and as demand slowed in line with a downturn in the economy. At one point in 2003, prices received by US dairy farmers hit a 25-year low, and low prices were responsible for an increase in the number of producers who moved out of the sector during the year.
The case of BSE confirmed in a Washington state dairy cow during December 2003 has had a significant impact on demand for dairy-sourced beef, and on prices fetched by dairy animals sent for slaughter. Producers appear likely to benefit from an upturn in milk prices during 2004, however, with a strengthening economy driving up consumption of milk and dairy products coinciding with an anticipated decline in output.
Milk production has risen at an average of just over 1% a year for the past decade, but was almost flat in 2003. The downturn in output for 2004 was originally expected to be of modest proportions, but many producers face sharply reduced supplies of the Monsanto productivity enhancer, Posilac (bovine somatotropin, BST), this year, and will struggle to match levels of productivity achieved in 2003 as a result.
With a little over one-third of milk production consumed in fluid form, remaining output is processed into cheese, butter and other dairy products. Production in these segments of the market is aimed primarily at the domestic market, and the US is a net importer of cheese. It plays a limited role in world butter trade, but is a significant exporter of non-fat dry milk.
Table 1.5: US output of major processed dairy products, 1999-2003
Source: USDA.
Feed and labour are the biggest contributors to dairy production costs, accounting together for almost 60% of expenditure in the sector according to a recent survey undertaken by the National Animal Health Monitoring System (NAHMS). Veterinary services and medicines contribute only 3% to total costs in the dairy sector, but it is nevertheless a high-level consumer of certain animal health products.
Since the mid-1990s, the sector's value as a market for animal health products has been boosted significantly by the use of BST, with Monsanto's Posilac product generating annual revenues of approximately $250 million. Dairy production also presents substantial market opportunities for other more traditional product segments – notably vaccines, anti-infectives, antiparasitics and reproductive aids. Effective nutrition and disease/health management are essential in order to maximise profits. Key inputs include hormone-based products designed to synchronise oestrus for maximum reproductive efficiency, and the use of anti-infectives and anti-inflammatories for the prevention and treatment of bovine mastitis.
1.3 Pig production
Pig production in the US continues to become increasingly intensive, with highly sophisticated, often integrated producers dominating output. Average herd size has risen from 100 little more than 20 years ago to a current figure of almost 700, and the biggest, industrial scale operations often house many thousands of animals. Even a decade ago, 44% of the national herd was accounted for by units with less than 1,000 animals. That figure had fallen to just 12% by 2003, however, at which point over 50% of the national herd was accounted for by units with a capacity of 5,000 or more.
Table 1.6: Concentration of the US pig herd, 1994-2003
Source: USDA.
There are still many thousands of small-scale operations, especially in the mid-west corn belt, but unless they target specialist niche markets these producers are exposed increasingly to the volatile nature of prices in the sector, and struggle to compete with factory-style units that benefit from massive economies of scale. Many have evolved into contract growers, providing animals for fattening and finishing by large, industrial-scale producers. Leading players in the sector have integrated their operations, which now often span slaughter, processing and packing as well as pig rearing.
The USDA's NASS put the size of the national herd at just over 59.3 million in March 2004 – up by 2% on year-earlier figures. Recent increases have seen total pig numbers reach levels close to the 1998 peak of just over 60 million. The breeding herd continued to decline, however, and fell below 6 million.
Table 1.7: US pig inventories, 2000-20041
1March census.
Source: USDA.
US pork production continues to rise, with preliminary figures for 2003 indicating that output exceeded 9 million tonnes – up by 1.6% on year-earlier figures and more than 5% ahead of production in 2000. Some further increase is expected in 2004, with USDA forecasts predicting that output will reach almost 9.2 million tonnes. Domestic consumption lags output by around 3%, and while the US imported over half a million tonnes of pork in 2003 the country remains a net exporter in the sector. Shipments were already in excess of half a million tonnes by the end of the 1990s, and have risen further since then, reaching almost 780,000 tonnes in 2003.
| | '000 tonnes | ||||
| 1999 | 2000 | 2001 | 2002 | 2003 | |
| Production | 8,758 | 8,597 | 8,691 | 8,929 | 9,073 |
| Consumption | 8,596 | 8,457 | 8,388 | 8,684 | 8,833 |
| Imports | 375 | 439 | 431 | 485 | 538 |
| Exports | 580 | 584 | 708 | 731 | 779 |
Despite recent increases in both domestic consumption and export trade, US producers have become increasingly worried by the volumes at which Canadian feeder and slaughter pigs have been entering the US market, and have filed petitions with their government. Additional duties are expected to be imposed by the government on Canadian imports during 2004 in a move that will help to sustain prices in the US pig production sector.
With BSE continuing to affect global beef trade volumes and several countries (including the US itself) affected by outbreaks of avian influenza in the poultry production sector, demand for pork is expected to remain strong in 2004, with US exports forecast to reach almost 830,000 tonnes. The continued weakness of the dollar should help to drive export trade. Japan, Mexico and Canada are the main destinations for US exports, with those three countries accounting for around 80% of shipments, but the industry is pursuing new markets in Central America and will be free to target the Australian market following a recent agreement between the respective governments of the two countries.
While the weakness of the dollar is driving exports up, it has limited import trade, and imports are expected to be down slightly on the preliminary figure of 538,000 tonnes recorded in 2003. New labelling regulations relating to country-of-origin information, which are due to become mandatory in 2006, could also affect import flows.
The pig production sector uses a broad range of animal health inputs, including nutritional and medicated feed additives, vaccines, anti-infectives and reproductive aids. Antiparasitics are also used widely. Many products are administered via feed or water rations, including a broad range of medicated additives with indications for both disease control and performance enhancement.
1.4 Poultry production
The poultry industry comprises broiler raising operations, egg production and subsidiary segments such as the breeding and production of turkeys, ducks and geese. Production of broilers and hens' eggs dominates the sector in value terms, however.
1.4.1 Broiler production
Broiler production in the US is a truly industrial undertaking. The sector was the first area of food animal production to embrace vertical integration, with single entities controlling all stages of the production process, from breeding through growing to slaughter, processing and even into the marketing segments. Vertical integration allows optimum flows of hatching eggs, chicks, feed and other supplies necessary for efficient production at minimum cost.
The range of products offered by major players in the sector was broadened dramatically during the 1980s and 1990s, with additional processing used to offer a wide variety of options for the consumer, including de-boned, frozen, cooked and microwavable 'ready-to-eat' cuts. The convenience and fast-food segments of the market helped to drive continued increases in demand, while increasingly efficient US producers were able to compete effectively in export markets.
Domestic consumption continues to rise, increasing by over 11% between 1999 and 2003, by which time demand exceeded 12.5 million tonnes, and the retail-equivalent value of broiler production was estimated at approximately $45 billion. Early forecasts for 2004 anticipate a further significant increase in domestic demand, which is expected to reach almost 13 million tonnes. Exports have also risen, but at a slightly more modest rate. US shipments exceeded 2.2 million tonnes in 2003, but that figure was 7.5% higher than 1999 levels, compared with the 11.4% increase in domestic demand observed during the same period.
Table 1.9: US broiler production, consumption and trade, 1999-2003