CME: Less Beef Imports = Per Capita Beef Declines

Regular readers of this report likely will remember that as early as March we pointed out that beef imports this year were poised to decline significantly compared to a year ago.

While USDA has been steadily revising down its estimates for US beef imports in 2008, we suspect they will continue to do so in the coming months given the current pace of beef entries to the US. Many of the factors that have negatively impacted beef imports remain there. Indeed, other than some trend model providing an indication of 2009 supplies, we see very little reason to believe that imports next year will bounce back as much as some expect.

In the last WASDE report, USDA estimated that total beef imports in 2008 are now expected to be some 2.692 billion pounds, 360 million pounds or 11.8% less than a year ago. While this may seem like a big decline, USDA is not really sticking its neck out there. Consider that beef imports in the first five months of the year were 1.076 billion pounds, 297 million pounds or 21.7% less than a year ago. So much of the expected USDA decline for the year has already happened in the first five months of the year.

According to our estimates based on US customs data, beef imports in the month of June could be down as much as 70 million pounds. This means that in essence, USDA is currently estimating beef imports for the second half of the year to remain steady compared to a year ago, not a reasonable assumption/ estimate in our view. Consider the reasons why beef imports are down in the first place: a) the weak US dollar makes the US market less competitive in world beef markets; b) beef production in Brazil, the top exporter in the world, is down; c) the EU has for the most part banned Brazilian beef causing it to look for product else where; d) Argentine beef exports are also down sharply, causing big customers such as Russia to go shopping in countries such as Uruguay and Australia, the top beef suppliers to the US.

These factors are there today and will likely continue to play a role going forward. The most critical, we think, is the value of the US currency. Currently the Australian dollar and the Canadian dollar are near or at parity with the US. The value of dollar vs. the Uruguayan peso is also down sharply and on top of that Uruguay is asked to pay 26.5% tariff for much of the beef they ship to the US. Bottom line: Less beef imports mean further declines in per capita beef consumption, and higher prices.

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