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USDA GAIN: Livestock and Products


06 March 2014

USDA GAIN: Mexico Livestock and Products Semi-annual 2014USDA GAIN: Mexico Livestock and Products Semi-annual 2014

Mexican beef and pork production forecasts are slightly higher in 2014 as affordable grain prices and improved climate conditions are helping the sector continue to recover. Import demand for US beef and pork is expected to remain strong as US prices are competitive and exports could be trimmed back as domestic consumers appear to have a greater willingness to pay for product in competition with export markets.

USDA GAIN: Livestock and Products

Commodities:

Animal Numbers, Cattle
Meat, Beef and Veal

Production:

2014 and 2013 Beef Production Forecast and Estimate Raised Marginally Higher

The new Post 2014 Mexican beef production forecast is 1.820 million metric tons (MMT) carcass weight equivalent (CWE), slightly greater than the 2014 official USDA forecast of 1.795 MMT, as continued improvements in feeding practices and genetics are contributing to better weight gains and carcass yields. Mexican industry members continue sourcing animals with better feed conversion to place into northern Mexico’s intensive production systems as a means to lower overall feeding costs. Also, the 2012 drought remains an important factor that has pushed cattlemen to select the best calves and heifers for breeding and feeding purposes. This is helping to increase calf production birth rates and leading to better live animal and carcass weights. Moreover, the Mexican government cattle herd repopulation plan (see MX3077) is being implemented in tropical regions and producers seem receptive to carrying out the program. All of these factors should continue to spur steady medium and long-term growth in the beef and cattle sector.

Post’s 2013 production estimate is revised upward from the 2013 USDA official estimate as preliminary official figures from the Secretariat of Agriculture, Livestock, Rural Development, Fishery and Food (SAGARPA) are now available. The increase suggests effective adjustments in feeding practices and in breeding cattle selection.

Post’s 2012 production is unchanged based on official information from SENASICA-SAGARPA which is in charge of Mexico’s federally inspected (i.e., TIF) beef slaughter facilities.

Evolving and Improving Cattle Production Practices Should Build Production in Cattle Head and Weights.

As mentioned above, cattlemen are looking to retain their best genetics to improve upon Mexico’s low breeding rate of 1 calf every 2 years. Also, better nutrients in feed rations (i.e., a larger percentage of grains and less dry forage) should improve cattle productivity. If successful, these two measures should not only safeguard domestic production but bolster it in a manner that eventually would allow the Mexican cattle sector to return to traditional calf exports and customary slaughter levels by the end of 2014.

Pasture lands are returning to almost normal conditions in central and southern Mexico allowing cattle to return to these lands for grazing. In northern Mexico, feed lot programs are continuing to grow as international grain prices are attractive and should lower beef production costs. As such, slaughter and carcass weights have moved upward since late 2013 and are expected to move even higher in 2014.

The cattle sector is optimistic that these improving and evolving practices will permit cattle inventory recovery in the coming years. As such, Post’s new 2014 cattle ending inventory forecast is increased over the official 2014 USDA forecast. The 2013 cattle ending inventory is increased, as well, for the optimism and growth seen in the industry as there was less loss and more incentive to retain and feed animals.

Consumption:

The new Post 2014 total domestic beef consumption estimate is 1.87 MMT which is slightly higher than the official USDA forecast as population growth, reasonable prices, availability of international supplies and diversion of some domestic supplies from exports to local markets should edge overall beef consumption greater.. Post’s new 2013 beef consumption estimate is 1.858 MMT slightly higher than the official USDA estimate due to similar reasons (i.e., increasing production and reduced exports). Consumption estimates for 2012 remain unchanged.

Flat Per Capita Consumption Now…

Post’s 2014 forecast and 2013 estimated consumption levels suggest that per capita consumption remains relatively stable between 15 and 16 kilograms per person. Industry sources echo this sentiment and site that higher production costs as well as reduced disposable income in mid and mid-low income households has led to shifting consumption patterns. Industry members suggest that both pork and poultry and processed products (e.g., sausages with fillers) increasingly have been substituted for beef in recent years.

… To Improve as Consumers Value Quality, Safety, and Wholesomeness…

However, the mid to long-term government project to convert all slaughter houses into TIF establishments could spur consumption. In 2005, 32 percent of the meat consumed in Mexico was processed in a TIF-type establishment whereas in 2013, this figure was reported to be 51 percent. Increasingly, it seems, consumers are becoming aware of the health and food safety benefits that TIF establishments offer as well as the established retail and hypermarkets that these TIF establishments supply.

... Of Established Retail Chains with Volume Discounts and Lower Operating Costs That Could Enable Per Capita Consumption to Rise.

Industry sources believe that consumers have a misconception regarding where to find the best beef prices. Many families still purchase beef at local butcher shops or wet markets and not in supermarkets. Commonly, these butcher shops and wet markets have limited warehouse capacity and, although great in number, only move one carcass a week. These low volumes and the need to move all parts of the animal leads to increased costs that is often passed onto the consumer. The alternative to these markets are modern chain stores that can warehouse and distribute large quantities of beef at affordable prices. For example, one source reported that the price of lean meat “bisteck” can reach 100 pesos per kg (~US $7.56 per kg) in butcher shops whereas in chain stores, given the large volumes that they handle, can offer the same cut at a price that is 30 percent lower.

Prices and Per Capita Consumption

In 2013, pork prices averaged 34.87 pesos per kg (~US $1.18 per lb.) and beef prices averaged 47.36 pesos per kg (non-fine cuts at ~US $1.60 per lb.). During 2013, prices for pork and beef increased and consumption levels remained relatively flat.

Chart 1: Mexico: Prices in Mexico City for Beef, Pork, and Poultry in Pesos per Kilogram

Source: SNIIM, Comentarios de Mercados Pecuarios. http://www.economia-sniim.gob.mx/nuevo/

Chart 2: Mexico: Per Capita Mexico City Beef, Pork, and Poultry Consumption

Source: AMEG, CMP, UNA, SIAP-SAGARPA.

Trade:

Post forecasts Mexico’s 2014 beef imports unchanged from USDA’s official forecast of 235,000 MT CWE. Post’s 2013 beef import estimate is lowered marginally to 220,000 MT CWE based on trade data. Limited supplies/higher prices from the United States along with higher weights for Mexican domestic cattle and the closure of the Russian market for Mexican exports (i.e., less need for replacement product) are all likely causes that Post believes led to lower import demand in 2013. Post’s 2012 beef import estimate is unchanged and based on official data.

The improved quality, food safety, and sophistication of Mexican beef operations has opened doors for increased and targeted Mexican beef exports over the past several years. Post’s 2014 Mexican beef export forecast is 185,000 MT CWE and its 2013 estimate is 170,000 MT CWE. The revision to 2013 is based on available trade data which likely accounts for the loss of the Russian market for part of the year and the higher costs of certifying product to Russia which curbed incentive to export there as better prices were found within Mexico. As demand within Mexico grows and beef supplies remain tight, 2014 exports could also be lower than the official USDA forecast as reflected in the new Post forecast.

Seeking Out Niche Markets and Marketing or Process Claims

Nevertheless, an increasing share of domestic production is processed and distributed with certifications and superior quality standards. As such, Mexican industry and government officials are continuing to look for expanded or new trade opportunities in the United States, Japan, Angola, Panama and several Asian countries. Primary cuts exported to the US continue to be rib eye, chuck roll, T-bone steaks, and tenderloins. However, private sources have indicated that given Mexico lacks a quality grading program, like that in the United States, most Mexican beef is given a no-roll classification. As such, several industry members are looking to be innovative and find ways to obtain higher premiums for their products in international markets that can garner a kosher, halal or even a USDA process verified program certification. At present, southern Mexican producers seem reluctant to try and market beef as grass-fed even though it may qualify as such.

Domestic Supply Constraints and Strong Demand Hold Live Cattle Exports Lower

The Post new forecast for live cattle exports in 2014 is revised lower to 1 million head, slightly down from the official USDA figure, due to a number of factors. These factors include: the perception that not enough heifers are remaining on hand for breeding purposes as well as the need of Mexican feedlot operators to keep products moving through their facilities which has pushed them to bid competitively with foreign buyers. Post, also, is revising the 2013 export estimate to 990 thousand head, slightly lower from the official USDA figure, due to new trade data. The 2012 Post estimate remains unchanged.

Live Cattle Imports Grow to Bolster Production

Mexican producer needs to repopulate beef and dairy herds have pushed import forecasts for 2014 and estimates for 2013 higher. These animals are only for breeding purposes but numerous feedlot operations have expressed an interest in sourcing US animals directly for slaughter. At present, this practice is not allowed as there is no Mexican zoosanitary requirement sheet (HRZ) that has been negotiated with USDA authorities.

Policy:

Single Window for Trade Has Not Yet Met Expectations

Mexico implemented the “New Single Window for Trade” (VUCEM by its Spanish acronym) at all border crossing points by early October 2013. The program had been undergoing trials at certain crossing points throughout the year. The system allows brokers to electronically file documentation that accompanies cargo shipments of any and all products and was specifically intended to streamline the Customs clearance process. Trade sources report, however, that the electronic system requires more time than the previous paper system. Mexican authorities are working on improving efficiencies and looking for ways to expedite document and product reviews.

Federally Inspected Type (TIF) Establishments Supported

In late January 2014, SAGARPA announced nearly US $50 million in government support to promote abattoirs and processing plants under federal oversight and inspection. SENASICA claims that the support will be used to help guarantee the production and processing of safe meat and poultry products.

Trade Liberalization Not Everyone’s Best Friend

As previously reported, Mexican meat sector representatives report that they feel threatened by Trans Pacific Partnership (TPP) negotiations and that the domestic meat sector could be challenged as other TPP negotiating members may be able to offer less expensive beef products into Mexico. They acknowledge that countries like Chile, Singapore, Peru, Malaysia and Vietnam present opportunities for Mexican exports but other countries such as Australia, New Zealand, and Canada represent a challenge to them in these third-country markets.

Marketing:

It is clear that the Mexican market is strategic for US exports; in volume, Mexico is one of the United States’ top export markets for meat products. The majority of said volume is covered by beef and pork, with very little contribution of other “non-traditional” meats like: veal, lamb, and even bison. In both beef and pork, US products have maintained a positive image in the mind of the Mexican consumer, who is aware of the high quality and safety and is familiar with the meat products available from the United States. The market is well-developed, mature but not saturated, and with knowledgeable, specialized players from both countries.

For beef, there is not much difference between accessing the Mexican retail, foodservice, and processing industry. Importers, distributors, and brokers basically cover all three sectors in their portfolios, so there is no need to approach any sector in particular with a different strategy. The current marketing trend is to position and differentiate US products based on quality in medium and high-end markets. The increase in demand for higher quality beef by the Mexican consumer can be easily confirmed by the different options available in supermarkets’ displays, as well as the average restaurant menu. The macro-economic stability and the current trend of healthy eating and staying fit reinforce opportunities for top-quality US products to enter the market quite easily.

Still, there are also opportunities in beef where the consumer is already aware of the difference in quality when using US products and the product is widely used in everyday recipes. Products like knuckle, inside- and outside-round are part of the average, traditional Mexican dishes, prepared at home and consumed every day. Availability of these products has decreased, due to supply issues in the domestic industry and a shift of US exports to other markets, mainly Asia. As a result of price sensitivity in this specific niche, the focus needs to change to prioritize volume rather than price.

As for pork, the market is highly driven by food processors, which mainly use bone-in hams as a source for sausages, deli, and other added-value products. Industry sources calculate that 70 percent of total pork imports are for food processing, leaving the other 30 percent to the fresh, unprocessed products, directly distributed to the retail and foodservice sectors. In pork, there are also opportunities for specialized products that, again, are included in traditional Mexican meals like Boston butt (which can be used for the famous trompo/pastor dish). Additionally, the bone-in loin and ribs are currently becoming a popular entrée, especially in sports-themed restaurants/bars.

Finally, for non-traditional meats mentioned before, like veal and lamb, although trade is significantly low, some market opportunities lie in high-end urban and tourist destinations, where specialty restaurants seek to offer “exotic” dishes and where consumers are more familiar with the taste and use of said products. Still, the distribution and commercialization of these other types of meat will probably be through the same channels as beef and pork, so importers can work with them as compliments to their regular line of products.

Marketing and promotional activities, mostly for beef and pork, are very common in Mexico as the country is considered a strategic market for the US meat industry. Through two Agricultural Trade Offices (located in Mexico City and Monterrey) and via local offices of the US Meat Export Federation (USMEF), exporters can access information and assistance useful to approach the Mexican market. As referred in our 2013 Exporter Guide and other GAIN reports where market entry recommendations are listed, US exporters should seek meetings with potential Mexican partners in the retail, foodservice, and food processing industries by participating in shows like Expo-Carnes (next edition to be held in Monterrey in February 2015), ANTAD (held every year in Guadalajara in mid-March), ABASTUR (also every year in Mexico City around September) and other conferences, seminars, and industry-related events.

March 2014

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