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CME: No Growth in Beef Exports Expected

12 September 2013

US - USDA will issue tomorrow its WASDE report, a month compendium of global supply/demand estimates, write Steve Meyer and Len Steiner.

Predictably, much of the focus coming into the report is on projections for the US and world corn and soybean crops and in previous letters we have provided market expectations and our own ideas on these topics. We thought it would be interesting to highlight, ahead of tomorrow’s report, an item that often gets overlooked but has an impact on the domestic balance sheet—beef imports. In the August update, USDA lowered its estimates for US beef imports in 2013 to 2.383 billion pounds, a slight downward adjustment from its July estimate but much lower than where we
started the year. This estimate still is about 150 million pounds larger than a year ago, however.

There are two issues worth exploring as we twiddle our thumbs before the USDA report comes
out. First, will we really have more beef imports this year than in 2012? The chart below outlines some of our thoughts in this respect. Steiner at this point expects no growth in beef imports compared to a year ago, a stance that reflects much more conservative estimates as to the flow of beef in the US in the second half of the year than what USDA expects. The chart below
shows that most of the beef coming into the US in the last two years has been from four countries: Australia, New Zealand, Canada and Mexico. In the case of Australia, beef imports through July were down about 42 million pounds or 10% from the previous year. While we expect the pace of exports to exceed last year’s volumes for Aug - Dec, Australian imports will likely remain muted despite a sharp increase in slaughter there in recent months. China has emerged as a large  buyer of Australian beef, helping mop up all the year over year increase in beef volume there.

And China demand is unlikely to disappear anytime soon given changes in China beef import
regime, expanding demand and sharp price appreciation for beef in that market. The chart outlines Steiner expectations for imports from various markets in 2013. New Zealand emerged as the top beef supplier to the US in the first half of the year. In part this was driven by a major drought in late February and March which pushed more cattle to slaughter. But seasonality has caught up with New Zealand beef imports and supplies from that country will be limited at least until November. Canada beef supplies remain limited and this will continue to impact the supply of beef
coming from Canada to the US. In the first seven months of the year, imports of Canadian beef were down 17%. Mexico beef imports rose sharply in 2011 and 2012, in part due to cow liquidation
in that market but also because high prices in the US and a weak peso favored shipments to the US. More recently, however, Mexican beef imports have been slowing down and we expect them to
hover near or below year ago levels for the remainder of the year.

Uruguay and Nicaragua probably would be willing to ship more but their volumes are constrained by tariff quotas. The second point to consider is the implication for beef imports in 2014. USDA August estimates were looking for imports to jump to 2.7 billion pounds. Where will this growth come from? Shipping beef to the US used to be the goal for many countries. But with Asia demand on the rise and US byzantine import protocols that may no longer be the case. One factor that could drive imports would be a shortage of lean beef in the US as US cow-calf operators stop sending cows to market. But much higher prices will be needed to “buy” beef away from other markets. This year we found out how challenging that can be. If imports don't materialize, than the per capita beef availability for 2014, which is already low, could be even lower.

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