US - Imported beef supplies have helped offset the shortfall in domestic US beef production so far this year, write CME analysts Steve Meyer and Len Steiner.
The latest USDA WASDE report projected US beef imports at 3.437 billion pounds, 490 million pounds (+16.7 per cent) more than a year ago.
The recovery in beef imports is even more impressive considering that just a few years ago (2011), the volume of imported beef was only slightly above 2 billion pounds.
Back then, US beef production was hovering around 26.2 billion pounds. So over the last five years, US domestic beef output has declined by 2.3 billion pounds but we have been able to offset that sharp reduction by purchasing more beef from our overseas partners.
Per capita beef supply availability in the domestic market is still down due to the effects of population growth but it would have been down even more had it not been for the surge in imports.
What made the increase in imports possible, and whether current imported beef volumes are sustainable, is an important consideration for beef availability and prices in the next couple of years.
USDA already expects imports to decline by about 400 million pounds in 2016 and their forecast reflects the supply realities of our largest import partners: Australia and Canada.
How will beef imports from Australia be affected by El Nino?
In the case of Australia, it is not a matter of if but when and how much beef availability will decline. The latest forecasts from Meat and Livestock Australia show that the Australian cattle herd at the end of June 2015 was 27.3 million head, down 6.2 per cent compared to the same period the previous year.
The forecast is for the inventory to decline another 4.4 per cent in the next 12 months as high prices in competing markets, still dry conditions in some areas due to El Nino and a weak Australian currency push producers to further liquidate their stock.
The recent commentary from the MLA quarterly report is quite telling: “Female slaughter remains a concern for future beef production, with 3.2 million head processed during the first eight months, up 26 per cent on the five-year average.
"In turn, this means the proportion of females processed has accounted for 51 per cent of the total adult cattle kill – up considerably from the 10-year average of 47 per cent. This will ultimately lead to fewer calves and lower beef production for the duration of the projection period.”
But even as the net reduction in supplies will impact beef supply availability, weather remains a major wild card for Australian beef production.
The chart shows the Nino oscillation, the variation in ocean temperatures in an area of the Pacific ocean that in the past has been associated with a number of weather events across the world.
We thought it would be interesting to see how the El Nino/La Nina patterns compare with the change in Australian slaughter and as you can see there is a correlation. Some periods are better correlated than others but it is no surprise that over time you will see the weather patterns and the change in slaughter move together.
What remains to be seen, and could be a significant risk for Australian supply availability, is a swing to a La Nina weather pattern in late 2016 and early 2017. Normally this means improving moisture conditions and eventually lower slaughter levels.
In past years, major swings to a La Nina event have correlated with slaughter declines of 10 per cent or more.
Dry conditions limit Canadian supplies
Canadian supplies also are expected to remain limited despite the favourable exchange rate. Different from the US, Canadian cattle inventories have yet to recover.
Dry conditions last spring and summer forced producers to send more cattle into feedlots and over the border, including more heifers.
The latest USDA forecast is for US cattle inventories as of January 1, 2016 to be up 3.5 per cent after increasing 1.4 per cent the previous year. On the other hand, Canadian inventories are expected to be flat in early 2016 following a 2.4 per cent decline in 2015.
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