31 October 2011

16 minute read

India Displaces the United States as Third Largest Exporter

Beef exports are forecast to rise five per cent in 2012 on robust global demand, particularly by Southeast Asia, the Middle East and North Africa. India accounts for nearly half of world growth in 2012 on increased supplies and price-competitive shipments to emerging markets. Expansion enables the rising exporter to nudge the United States to become the world’s third largest exporter. The United States maintains gains achieved since in 2003, the last year before the BSE detection in Washington State, to reach record level exports. Despite a weak dollar, additional US growth is constrained by lower production.

Russia Is the World’s Largest Beef Importer

Russia, which now includes trade with Belarus, is forecast to continue its new found position as world’s leading importer. Slightly lower production will be partially offset by an increase in imports. The tariff rate quota (TRQ) volume remains unchanged in 2012 and again a significant volume will likely be imported over quota.

BEEF AND VEAL: 2012 FORECAST OVERVIEW

World Production Stable as US Decline Offset by India, Brazil and Argentina

Total world production is virtually unchanged despite another year of anticipated tight global supplies with strong demand. The expected significant decline in US production will be largely offset by gains for India, Brazil and Argentina, while the EU and China will remain relatively stagnant.

US Production to Plummet

Production by the world’s leader, the United States, is forecast to tumble five per cent to 11.4 million tons. Supplies of cattle available for slaughter will be significantly tighter due to lower inventories and recent years’ declining calf crops. Additionally, cattle imports are expected to drop, placing further downward pressure on cattle supplies. Elevated feed prices and drought in the Southwest will keep carcass weights relatively stable, preventing any partial offset from lower cattle slaughter.

India Surges on Dairy and Export Demand

As the world’s largest dairy consumer, India’s bovine herd continues to be fueled by domestic dairy demand. Increasing cattle and buffalo inventories have facilitated lower costs and rising dairy production, while strong profits have paved the way for improved management practices. The expansion of the dairy industry generates additional bovine meat production as an increasing herd raises the pool of animals available for slaughter.

In addition to the impetus of dairy, strong global demand for price-competitive bovine meat generates new incentives for slaughter facilities to salvage previously under-utilized animals. Robust foreign demand drives forecast production seven per cent higher to 3.3 million tons. Marginally higher domestic consumption reflects only population growth, given the Indian preference for vegetarian and dairy-based protein sources.

Brazilian Production Higher on Domestic Demand

Government financing support for herd rebuilding as well as genetic and pasture improvements are forecast to generate an increase in Brazil’s cattle inventories, boosting slaughter-ready supplies. Some processors have even reached partnerships with ranchers to increase feedlot production, enabling them to have pools of finished cattle available throughout the year so as to avoid shortfalls during the dry season when pastures are insufficient, largely in the center-west. These factors, combined with slightly higher carcase weights are expected propel production two per cent higher to 9.2 million tons. Although elevated prices have somewhat stifled exports, a rising middle class with more purchasing power is driving strong domestic demand.

Other Major Producers Forecast to Make Gains Largely on Herd Rebuilding

Argentina’s beef production is forecast to recover slightly, up 4 per cent to 2.5 million tons. Increased slaughter is expected as profitable returns due to continued elevated cattle prices. Improved conditions encourage investment and retention. Producers benefit from hearty domestic and global demand.

Herd rebuilding in Australia has commenced in response to greatly improved pasture conditions and fodder supply compared to recent years. Increased slaughter will outweigh a slight reduction in carcase weights, generating a boost in production of two per cent to 2.2 million tons which is destined largely for export.

After years of contraction, the Canada’s cattle industry may be entering a phase of herd rebuilding. Increased inventories and a rise in the calf crop partnered with lower live exports to the United States will increase the availability of cattle for domestic slaughter. Canada will continue to maintain its recently acquired feed cost advantage vis-à-vis the United States, although at a narrower margin. With ample feed quality wheat and barley supplies, live cattle exports will be depressed as animals remain in Canada for feeding and slaughter. Production is forecast four per cent higher to 1.2 million tons.

Unlike the swine sector, Korea’s cattle industry was largely spared from the widespread culling due to the foot and mouth disease (FMD) outbreak of the last year. Sizeable inventories born in 2010, when producers were expanding, are now in the pipeline ready for slaughter. Record inventories will exert downward pressure on prices, prompting slaughter of younger animals. Production is forecast 13 per cent higher to 295,000 tons.

Paraguay’s Expansion Stymied by September FMD Outbreak

With the drop in prices, Paraguay’s ranchers are expected to retain slaughter ready cattle as long as possible, waiting for price recovery on the reestablishment of exports. In the wake of the FMD outbreak, nearly all export plants were shut down but smaller local slaughter plants continued normal operations. Paraguay’s production will rise slightly to 440,000 tons, remaining below the level of recent years.

Trade: Shipments Higher to Emerging Markets; India to Capture Significant Gains

Rising global demand, particularly from emerging markets in Southeast Asia, the Middle East and North Africa, are forecast to raise world exports five per cent to 8.2 million tons. Shipments to developed markets, except the United States, will be largely stagnant.

IMPORTS

United States to Lead Increase in Imports

Declining US production will push imports four per cent higher to 948,000 tons albeit remaining below historical levels. Additional growth is limited by a sluggish US economic recovery, a weak dollar, tight Oceania supplies and strong demand from competing importers.

Middle East and North Africa Expansion to Continue

Demand will be robust across the region with imports by all reporting countries forecast to rise.

The strongest growth is expected from Egypt as meat consumption rises. Imports are forecast nine per cent higher at 250,000 tons. Domestic supplies will be unable to fulfill demand despite greater imports of slaughter cattle. Profitability in the dairy sector, the driver of the cattle industry, will encourage the retention of animals.

Iran is forecast four per cent higher to 235,000 tons as consumption remains robust. Iranian investment in Brazilian slaughterhouses assures continued strong bilateral trade.

Imports by Saudi Arabia, Algeria, Israel, Jordan, Kuwait and the United Arab Emirates are all forecast four to nine per cent higher on rising populations and incomes as production is limited.

South East Asian Emerging Markets Lead Asian Growth

Viet Nam and Malaysia will generate opportunities for increased imports, eight and 11 per cent, respectively, on robust demand, economic growth, a growing middle class, and rising disposable incomes.

Similarly, the Philippines and Singapore are expected to see increases in imports, three and 11 per cent respectively.

Among traditional developed Asian markets, only Hong Kong and South Korea are forecast to increase, gaining eight and two per cent, respectively.

Japan is forecast unchanged at 725,000 tons as relatively flat consumption will be met by stable domestic production and the return to normal distribution since the 2011 Miyagi earthquake.

EU and Russia Forecast Minor Increases

The slight increase in EU imports to 375,000 tons will be limited by elevated South American prices, traceability restrictions on Brazilian supplies, exchange rates, and weak demand.

Russia’s imports are forecast one per cent higher at 1.06 million tons as increased imports partially offset lower production. Cattle inventories continue to shrink as the dairy industry restructures and a smaller pool is available for slaughter, limiting production. The tariff rate quota (TRQ) volume remains unchanged in 2012 and a significant amount is expected again to be imported over quota. However, imports remain volatile due to sanitary barriers. Russia restricted imports from certain Brazilian beef facilities in June 2011 and while significant in number, the restriction was not as crippling on supply as the impact on pork. Nonetheless, alternative suppliers are expected to benefit from the continued restrictions. Russia and Belarus have yet to establish plans for 2012, but the agreement is expected to closely resemble the current agreement (which allows Belarus to export 130,000 tons to Russia) with the strong potential to increase bilateral trade in order to maintain stable supply. However, since border controls were removed in July 2011, trade may likely be more difficult to regulate and tabulate.

EXPORTS

India Solidifies Its Position as a Price-Competitive Supplier

India’s exports are forecast 16 per cent higher to 1.28 million tons. Rapid expansion will continue due to the competitive position as a low-cost supplier of bovine (buffalo) meat. Other factors positively impact its marketability, particularly in North Africa and the Middle East. Meat is slaughtered following halal standards and the lean character of buffalo meat has several positive blending characteristics sought by processors.

Ample supplies and relatively weak domestic demand result in increased production being exported despite limited market access compared to other leading suppliers. India maintains important classifications with the OIE (World Organization for Animal Health): “negligible risk” for bovine spongiform encephalopathy (BSE) and “free” for rinderpest and contagious bovine pleuropneumonia. However its FMD status poses issues with gaining additional market access. Although the disease is controlled though vaccination programs, India does not maintain an FMD status classification with the OIE.

Australian and Brazilian Grow, But Constrained

Australia’s exports will rise modestly to near record levels (1.38 million tons) on greater supplies. However, a relatively strong Australian dollar, robust domestic demand and falling carcass weights constrain additional expansion. Appreciation of the Australian dollar in 2011 has diminished shipments to the United States and somewhat rendered Australia less competitive in other markets such as Japan, thus pushing more shipments to non-traditional markets such as Russia.

The rebound in Brazil’s exports is based on greater production and recovery of major markets Russia, the Middle East and Hong Kong. There is little expectation that shipments to the EU will recover as economic concerns constrain demand and supplies which meet the EU traceability program are limited. Recovery of shipments to the United States is also anticipated due to resolution of the Ivermectin residue. Brazilian exports are forecast four per cent higher at 1.38 million tons.

US Exports Remain Constant Despite Tight Supplies

Despite significantly reduced production, the United States is forecast to maintain exports which will reach 1.25 million tons, a historic 11 per cent share of production. Continued strong demand by major markets Canada, Mexico and Asia will buoy shipments.

Canada’s and Argentina’s Exports Higher on Production Growth

Canada’s exports are forecast to increase eight per cent to 450,000 tons on additional supplies and strong global demand.

Although Argentina’s is constrained by government restrictions and domestic beef prices, increased production should bolster exports which are forecast to reach 300,000 tons. Consequently, the industry has focused on shipping higher value cuts to premium markets such as the EU (under and above of the Hilton Quota) as well as Russia and Israel.

PORK AND SWINE: 2012 FORECAST OVERVIEW

China and Korea Drive Rebound in Global Pork Production

Global pork production is forecast two per cent higher to a record 103.4 million tons. Growth is mostly attributed to recovery in South Korea and China. Modest growth is also expected from major exporters the United States, Russia, and Brazil.

South Korea is forecast up 21 per cent to 1.0 million tons as their pork industry rebuilds following the devastating foot and mouth disease (FMD) outbreak that slashed their production by 25 per cent. Record high swine and pork prices have encouraged producers to quickly rebuild despite higher compound feed prices. Sow inventories have expanded rapidly and beginning sow stocks are expected to reach 98 per cent of pre-FMD levels. Producers are expected to continue to rebuild through 2012. However, it is unlikely that total inventories at the end of 2012 will reach pre-FMD levels due to new regulations increasing minimum barn space requirements and environmental regulations. Additionally, the recently implemented Free Trade Agreement with the EU is expected to increase relative competitiveness of EU pork, which in turn is expected to put downward pressure on Korean production.

China’s production is forecast to recover four per cent to 51.3 million tons following swine disease problems and poor producer returns. The rebound is being fueled by sharply higher prices and recent government measures such as the productive sow subsidy, although swine inventories are not expected to fully recover in 2012. Expansion in small scale operations, which still account for a majority of production, is being constrained by higher feed costs and swine disease threats. Meanwhile, large scale operations report some difficulties in acquiring additional land necessary for expansion.

The United States is forecast up two per cent to 10.5 million tons. Producers are expected to continue to benefit from productivity gains, with the pig crop up two per cent while beginning sow stocks have increased only slightly. Greater available supplies compared to competing proteins are expected to bolster domestic consumption.

Russia is forecast up three per cent to 2.0 million tons, supported by positive producer gains and government support and investment. Producers have expanded their breeding herds in the face of lower feed prices, less import competition due to a sharp reduction in the import quota, and the prospect of higher pork prices. Production growth is expected to come from larger operations, as smaller producers find it difficult to compete with new, modernised farms.

Japan’s production is forecast up two per cent to 1.3 million tons as producers are expected to rebuild. Greater domestic supplies are expected to mitigate import demand.

The Canadian hog industry has reached a turning point after several years of decline. Pork production is forecast up one per cent to 1.8 million tons with modest increases in beginning sow inventories and the pig crop. Relatively high feed costs and uncertainties in both pork prices and foreign demand will likely temper growth.

Brazilian pork production is forecast up two per cent, to 3.3 million tons, as domestic demand strengthens in response to industry promotions. Consumption is also expanding among the growing Brazilian middle class, as pork prices are competitive with beef.

Global Trade Constrained by Import Restrictions

Imports are forecast down four per cent to 6.0 million tons, constrained by a sharply lower Russian TRQ and reduced South Korean import demand. Other major importers are forecast nearly unchanged or in the case of Mexico and China slightly higher.

Russia’s imports are forecast to drop 25 per cent to 700,000 tons, due mostly to a 30 per cent cut in the import quota in an attempt to promote domestic production. However, out-of-quota shipments are expected to continue to be significant. Lower imports combined with modest production growth are expected to result in a decline in consumption.

South Korea’s imports are expected to fall 20 per cent to 500,000 tons, yet will remain significantly higher than 2010 pre-FMD-impacted levels. The special zero duty TRQs to facilitate imports in 2011 are not expected to continue.

Mexico’s imports are forecast up three per cent to 650,000 tons as pork is expected to be more price competitive vis-à-vis other meats. Additionally, the expected reduction of Mexican retaliatory tariffs on hams and shoulders are expected to make US pork more competitive.

China’s imports are forecast two per cent higher to 560,000 tons as expanding domestic supplies are unable to meet rising demand.

Japan’s imports are expected to remain flat at 1.2 million tons as greater domestic supplies limit import growth.

US exports are forecast up three per cent to 2.3 million tons with larger shipments to China and Mexico expected to outweigh reduced demand from South Korea and Russia. Exports are increasingly important to the US pork industry, accounting for 22 per cent of production.

EU exports are forcast down five per cent to 1.9 million tons largely on tighter supplies as well as weaker demand by some key importers. Lower shipments are expected to Russia due to lower import quotas, and South Korea where domestic supplies are recovering.

Brazil’s exports are forecast down two per cent to 570,000 tons as Russia continues to ban imports from three major pork producing states. However, Brazil is expected to expand exports to Hong Kong, Argentina, and other markets.

Canada is unchanged at 1.2 million tons as a relatively strong Canadian dollar and limited supplies are expected to constrain their competitive position.

BROILER MEAT: 2012 FORECAST OVERVIEW

PRODUCTION:

Global production is forecast up nearly three per cent to 83.1 million tons, driven by strong domestic demand in China and Brazil. However, growth will be slower than the previous two years given the rising cost of feed and a slowdown in US production.

Slight Reductions for the United States and Mexico

The United States, the world’s largest broiler meat producer, is forecast to decline one per cent to 16.6 million tons, as lower broiler prices and relatively high costs constrain profitability. Relatively high production costs are also forecast to adversely impact Mexico’s production, down one per cent to 2.9 million tons.

Brazil and China Propel World Expansion

Brazil and China are both forecast up five per cent to 13.6 and 13.8 million tons respectively. Both are driven by stronger domestic demand, greater disposable income, economic growth, an expanding middle class and competitive prices which favor poultry over red meats. Brazil is also benefiting from more stable production costs due to ample feed supplies.

In China, expansion is supported by lower rates of reported disease and improving economies of scale through continuing vertical integration. Rising broiler meat prices will be more than offset by relatively high feed costs. A larger inventory of grandparentgeneration (GPG) breeding broilers is paving the way for expanded and more efficient commercial production.

Russian Support Leads to Greater Output

Subsidized feed costs, import restrictions and continued investment are forecast to drive Russia production nine per cent higher to 2.8 million tons. Continuing reductions in tariff rates quota (TRQ) volumes will limit imports and therefore support elevated prices for domestic producers.

Increased Global Demand Boosts Output by Minor Suppliers

Robust profitability, strong investment and rising domestic and foreign demand has stimulated production in Argentina, Thailand, Turkey and Ukraine.

TRADE:

Global exports are forecast five per cent stronger to a record of 9.6 million tons with greater demand from emerging markets, most notably the Middle East, Southeast Asia and Sub Saharan Africa.

US exports are forecast to rebound two per cent to 3.0 million tons as growth is expected in the Mexican and Asian markets (South Korea and Hong Kong). Mounting demand from emerging markets particularly in Sub Saharan Africa will continue to support expanded shipments. However, exports to Russia are constrained and are likely to decline due to the lower TRQ quantity.

Brazil remains the leading exporter climbing five per cent to 3.5 million tons. The Middle East will be the primary driver for export expansion, fueled by anticipated economic growth and a rising population. Brazil is able to ship significant quantities of whole birds as well as halal product. The largest poultry processor and exporter (Brasil Foods) is constructing a processing plant in the UAE which is expected to generate demand for imports. Shipments to Venezuela are expected to expand, despite commercial challenges.

The EU is forecast at 1.1 million tons, up two per cent. Additional expansion of exports is limited by high feed costs, escalating competition and fading shipments to Russia due to a lower TRQ volume.

China and Thailand continue to be constrained by disease related restrictions, and thus are limited to shipping prepared/preserved products. Key destinations for China are likely to remain Japan, Hong Kong and Malaysia. In addition to Asian markets, Thailand will continue to benefit from its access to the EU. China and Thailand are expected grow 9 per cent to 445,000 and 500,000 tons respectively.

Turkey gains 27 per cent to 193,000 tons, primarily on Middle East demand (Iraq and Iran) as domestic production continues to grow, generating more exportable supplies.

TURKEY MEAT: 2012 FORECAST OVERVIEW

PRODUCTION:

World production is virtually unchanged at 5.3 million tons. Brazil production is forecast up five per cent, and offset by less production in the EU and US, forecast down two per cent and one per cent, respectively.

TRADE:

Lackluster import demand will keep world trade flat. EU, Brazil and Canada exports are forecast to remain relatively stable. A five per cent drop for US exports is forecast based largely on soft demand from several markets. China imports are forecast higher as elevated domestic prices for pork and broiler meat make turkey meat a price competitive alternative.

Further Reading

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October 2011