As the world’s largest exporter of agricultural commodities, what happens in the US often sets the tone for the rest of the world. For US dairy and tillage farmers, 2019 was a difficult year thanks to heavy flooding, bad prices and increased competition. In contrast, US beef farmers enjoyed a profitable 12 months.

Dairy

Since 2016, US dairy farmers have endured a difficult time as farmgate milk prices remain weak in the face of a glut in production. For most of the past three years, US prices have been below $17/cwt (30c/l), which is around the breakeven mark for most US dairy farmers.

This sustained period of weak milk prices has seen huge numbers of farmers exit dairying altogether in the US. Since 2016, an average of six dairy farms have gone out of business every day. That’s more than 6,500 dairy farms in the last three years.

Farms getting bigger

Most of those exiting dairying are smaller family farms. While small farmers are getting out, large dairy farms over 2,000 cows in size are only getting bigger.

The fall in the number of dairy farms can be seen in the US national herd. USDA figures show the number of dairy cows in the US has reduced by more than 120,000 head in the last year to just over 9.3m head.

Despite this decline, milk output remains steady. For 2019, the US is on course to pump out a little over 95bn litres of milk, slightly ahead of 2018 production.

The reason the US can maintain production even though cow numbers are declining is down to yield. The remaining cows in the national herd are producing more milk, with the average US dairy cow now producing 10,600l per annum.

Decline in consumption

The main cause of the recent price weakness has been the rapid decline of liquid milk consumption in the US, which has been falling faster than the decline in the number of dairy cows. In 2018, Dean Foods, the largest liquid milk company in the US, filed for bankruptcy. On top of this, almost $1.7bn (€1.5bn) of sales of fluid milk has been displaced by alternatives such as almond, soya and oat drinks.

Rather than drink dairy, most American’s are now choosing to eat dairy. Cheese and butter consumption remains excellent thanks to a strong foodservice and out of home market in the US.

While the past few years have been very difficult for US dairy farmers, the market situation has improved recently. In the last few months, farmgate milk prices have increased above the cost of production as a result of tighter supplies.

Prices are now close to $20/cwt (40c/l) and milk production is beginning to rise. In October, production increased 1.3% year on year to just under 8bn litres.

Challenges

However, challenges remain. The ongoing trade war with China is a major worry for the sector, particularly as the US is a major exporter of skimmed milk powder (SMP) on to world markets.

At the same time, US dairy is facing stiff competition from EU exporters in its traditional core markets of Mexico and Canada thanks to recent trade deals between Europe and both countries.

Tillage

This winter, farmers along the central grain belt of the US will be mulling over spring planting decisions. Farmgate prices for corn (maize) and soya beans, the two major crops, remain historically weak.

However, the most pressing concern will be weather. US farmers endured a difficult 2019 as heavy rains caused severe flooding in the spring and summer. This flooding caused huge damage to crops at a crucial stage of the growing season.

Flooding

The midwest states (Nebraska, Missouri, South Dakota, Iowa and Kansas) experienced heavy flooding from March on as the Missouri burst its banks. Further south, the mighty Mississippi also flooded its banks on several occasions in the winter, spring and summer.

The Mississippi Delta on the border between the states of Mississippi and Arkansas saw extensive flooding, with crops valued at millions of dollars lost.

According to the USDA, at least 1m acres of farmland in nine major grain producing states were flooded in 2019.

Total corn production dropped 5%, or 20m tonnes, to less than 347m tonnes

Unsurprisingly, 2019 crop yields were well down and the quality of crops was much more varied than previous years. The 2019 soya bean crop in the US was hit particularly hard by the extensive flooding.

In 2018, US tillage farmers planted 89m acres in soya beans and produced a record 120m tonnes of the popular oilseed crop. However, floods severely hampered spring planting in 2019 and US farmers were only able to plant 77m acres in soya beans – a massive reduction of 12m acres.

This reduced planted area saw US soya bean production collapse by 20% this season to just 97m tonnes. As it is planted earlier, the acreage planted in corn was relatively stable at 89m acres in 2019.

However, the floods hurt average yields and total corn production dropped 5%, or 20m tonnes, to less than 347m tonnes.

Not only were crops damaged by the 2019 floods, but extensive damage was done to the large volumes of crops stored in silos. Grain silos on many farms collapsed, leading to the loss of huge volumes of stored grain.

Uninsured

Most of this grain is uninsured, meaning the farmers received no compensation for the damage and losses, which ran into the millions on many large-scale farms.

After such a difficult year caused by floods, it will be interesting to see if US farmers decide to plant more winter wheat in a bid to hedge their bets away from just soya beans and maize.

Beef

US beef farmers had a good year in 2019, with farmgate prices for steers at the equivalent of €3.87/kg for choice steers at 17 December, according to the USDA. This is below the peak of €4.04/kg achieved in the middle of the year, with the lowest point in the middle of February when prices dipped to €3.17/kg.

Prices opened 2019 at €3.57/kg and remained above €3.50/kg for most of the year and close to €4.00/kg in the second half. This is a noticeable improvement on the 2018 price, which started the year at the equivalent of €3.75/kg and then tended to hover around €3.50/kg.

Marginal increase

There was a marginal increase in the number of cattle killed in 2019 up to the end of October. Just over 28m head were processed in federally inspected abattoirs, up from 27.6m cattle for the same period in 2018. Average cattle weights are down slightly for the first 10 months compared with 2018 at 608kg compared with 611kg in 2018. This produced 10.25m kg of beef in 2019 compared with 10.16m kg in the same period in 2018. Looking ahead, cattle on feed for slaughter were at 11.3m at the end of October 2019, slightly down on the 11.4m on feed at the same time in 2018.

Global exporters

The US is consistently one of the top three global exporters of beef and also the second largest importer of beef after China. This is because the US consumes disproportionately more forequarter beef used in burgers and mince compared with steak meat and roasting cuts. Therefore, forequarter beef is imported while hindquarter cuts are exported.

The main suppliers of imported beef to the US in the 12 months to the end of October 2019 were Canada on 414,000t carcase weight equivalent (cwe), Australia on 455,000t and Mexico on 277,000t. Ireland is the ninth biggest supplier of beef on 4,385t. Prices of imported manufacturing beef increased dramatically in 2019, driven in recent weeks by competition from China. 95% lean forequarter beef from Australia and New Zealand is currently worth the equivalent of €5.90/kg, €1.50kg better than a year ago.

Main destinations

In the year ending October 2019, the Japan and South Korea were the main destinations for US beef exports. Japan imported 398,000t cwe, with South Korea taking 331,600t cwe. Mexico was the next, taking 215,500t, with Canada taking 134,500t. Small amounts of US beef are exported to the EU but the most significant occurrence in 2019 was the agreement by the EU to ring fence 35,000t of its 45,000t tariff-free quota for the exclusive use of the US.

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