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August Strength: Meat Exports Up in Global Volatility

15 October 2008

US - U.S. beef and pork exports performed extremely well in August, despite growing concerns about global financial conditions and an upward surge for the U.S. dollar that has diminished the purchasing power of some major trading partners’ currencies.

While August pork plus pork variety meat exports declined in comparison to the record monthly totals set earlier this year, the August total of nearly $444 million pushed this year’s export value past the then-record total achieved in 2007. In just the first eight months of 2008, pork exports reached a value of $3.21 billion, compared to $3.15 billion in all of 2007. The export volume of 1.37 million metric tons (3.03 billion pounds) also exceeds 2007’s year-end total.

“This is really an amazing milestone for pork exports,” said U.S. Meat Export Federation President and CEO Philip Seng. “We knew pork exports were headed for an all-time high in 2008, but for the industry to break that record before Labor Day is quite an accomplishment.”

January-August pork exports have increased 71 percent in volume and 64 percent in value compared to the same period last year. Japan is still the largest value market for U.S. pork, at $992.7 million for the year – an increase of 29 percent over 2007. Japan’s volume of 299,277 metric tons (659.8 million pounds) is up 25 percent over last year. August pork exports to Japan were a near record, and are expected to remain strong through the remainder of this year and in 2009.

Mexico also continues to be a strong growth market, with January-August volume up 35 percent and value up 46 percent over last year - to 237,655 metric tons (523.9 million pounds) valued at $417.3 million. For the remainder of the year, however, activity may decline due to the recent devaluation of the Mexican peso and the broader economic slowdown, with consumers substituting lower-cost food items for red meat.

Pork exports to Russia increased 174 percent in volume and 177 percent in value this year - to 141,446 metric tons (311.8 million pounds) valued at $302 million. August exports to Russia set a new monthly record of 28,012 metric tons (61.8 million pounds) valued at $61.9 million. Seng cautioned that current negotiations regarding tariff rate quota (TRQ) amounts and tariff rates could impact future trade with Russia, but he still looks forward to strong performance for U.S. pork in this market.

“Russian processors will continue to need imported pork in order to satisfy quality requirements and meet current demand,” he said. “While there is some uncertainty with regard to the tariff rates and TRQs we will face, Russia simply doesn’t have the domestic production to satisfy its needs.”

Pork exports to the China/Hong Kong region – this year’s leading destination for U.S. pork in terms of volume - declined again in August, totaling 21,568 metric tons (47.5 million pounds) valued at $37.1 million. This is less than half the record volume recorded in May 2008, but it is still well above the 2007 level and pushed the region’s total for the year to 307,903 metric tons (678.8 million pounds) valued at 533.8 million. Pork muscle cut purchases earlier this year were subsidized by the Chinese government to increase the amount of pork in storage and ease food price inflation. These subsidized purchases have now largely ceased, and China has seen an increase in domestic production and the release of pork stocks into the market. While this has made the market much more challenging for imported pork, high domestic production costs in China will likely force some producers out of business. Therefore, China remains a promising market for U.S. pork exports in 2009 and beyond.

Other August highlights for U.S. pork exports:
  • Exports to Canada remain well above 2007 levels. Through August, results are up 23 percent in volume and 20 percent in value over the same period in 2007. Imports of live Canadian hogs have slowed, however, and analysts are monitoring the impact of mandatory country-of-origin labeling (which took effect on Sept. 30) on pork trade with Canada.
  • Exports to South Korea have increased 47 percent in volume and 28 percent in value over the same period last year, defying the expectations of some analysts who expected some decline in U.S. pork exports here with the reintroduction of U.S. beef into the market. In fact, the August export volume of 10,530 metric tons (23.2 million pounds) was more than double the August 2007 total.
  • January-August exports to the Association of Southeast Asian Nations (ASEAN) have increased 449 percent in volume and 466 percent in value over the same period last year - to 43,737 metric tons (96.4 million pounds) valued at $84 million. While monthly exports to Vietnam and the Philippines have declined from the record volumes recorded during the first half of this year, August volume was still about three times as large as the August 2007 total.
  • Exports to the European Union have increased 153 percent in volume and 144 percent in value over last year. Pork production in the E.U. expected to decline by at least 3 percent next year, which could further strengthen opportunities for U.S. pork. Pork exports are also gaining considerable traction in Eastern Europe, particularly in Bulgaria.
  • Exports to Australia and New Zealand have climbed 23 percent in volume and 14 percent in value over the same period last year, reaching 31,893 metric tons (70.3 million pounds) valued at $79.4 million.

August beef export value shatters all-time monthly record

August beef plus beef variety meat exports surpassed July totals by almost 15 percent, and set a new, all-time monthly record in terms of value. The record total of $416 million exceeds the previous record of $387 million - set in June 2003 - by 7.5 percent. Year-to-date, beef exports have recovered 93 percent of value and 75 percent of volume when compared to January-August 2003.

Mexico and Canada continue to perform remarkably well for U.S. beef, as they combined to account for about 60 percent of beef export volume and 63 percent of export value in August. Beef exports to Mexico - which had set a record for both value and volume in July - set another value record of $150.6 million despite a small decline in volume from the previous month. For January-August, beef exports to Mexico climbed 19 percent in volume (to 279,735 metric tons or 616.7 million pounds) and 25 percent in value (to $975.5 million) over 2007. Beef exports to Canada have increased 35 percent in volume and 38 percent in value over last year, to 109,717 metric tons (241.9 million pounds) and $513.8 million, respectively.

Beef exports to Japan over the first eight months of 2008 totaled 51,279 metric tons (113 million pounds) valued at $265 million, representing an increase of 64 percent in both volume and value over last year. While August results in Japan remained strong (6,951 metric tons or 15.3 million pounds), the volume slowed from its June-July peak - which is likely due to a decline in available cattle less than 21 months of age. USMEF-Tokyo’s introduction of alternative beef cuts into Japan should help maintain strong volumes through the winter months, despite the shortage of Japan-eligible cattle. While the U.S. dollar has strengthened sharply against many foreign currencies, the Japanese yen has maintained a strong level of purchasing power. It is important to note, however, that the Australian dollar has declined about 30 percent against the yen over the past 90 days, which has provided Australian beef with a price advantage in this market.

Beef exports to Russia are being adversely impacted by global currency trends. January-August exports to Russia totaled 28,956 metric tons (63.8 million pounds) valued at $67.5 million, and August exports set a new monthly value record at nearly $25 million. However, sales have slowed in recent weeks due to economic conditions, devaluation of the ruble against the U.S. dollar, and a decline in the Brazilian real - which has restored much of the price advantage Brazilian beef has historically enjoyed in this market.

“While August was still a strong month for beef and beef variety meat exports to Russia, we expect to see a slowdown in the fall months – especially for muscle cuts,” said Seng. “Russia’s beef demand is always somewhat seasonal, and other economic conditions are working against us there as well. But despite the downturn, we’re pleased with the performance for U.S. beef in Russia in what is essentially our first year back in that market since 2003.”

Beef exports have gained traction in South Korea, with August totals of 12,404 metric tons (27.3 million pounds) valued at $62.7 million. Seng cautioned, however, that the U.S. beef industry faces a challenging environment as it attempts to reclaim what was once its third-largest export market.

“While the distribution of U.S. beef continues to expand in Korea, it is still largely absent from the shelves of large discount retail chains,” Seng said. “Key large discounters have not yet announced plans to restart U.S. beef sales, and traders regard such an announcement as a watershed for jump-starting sales to other retail stores, as well as to large hotels and foodservice chains.”

He added that the Korean won has been one of the weakest-performing Asian currencies this year, having lost about one-third of its value against the dollar since U.S. beef reentered the market this summer.

Other Asian markets are performing extremely well for U.S. beef, as exports to the ASEAN region set a new record in August with a volume of 5,416 metric tons (11.9 million pounds) valued at $17.5 million. Vietnam currently accounts for about 71 percent of the volume and 75 percent of the value of ASEAN purchases, making it the fifth-largest market for beef exports (by value) in 2008. The fourth-largest market is Taiwan, where January-August beef exports have increased 38 percent over last year to 19,388 metric tons (42.7 million pounds) valued at $91.2 million.

Beef exports to the Middle East also showed strong performance in August, with a value of $16.8 million. Exports to the Middle East thus far in 2008 are down 2 percent in volume from last year but have increased 37 percent in value to $97.8 million. Egypt’s purchases of livers and other variety meats account for much of this increase in value, due in part to strong buying competition from Russia. Muscle cut exports to the Middle East also have increased dramatically this year, with the United Arab Emirates, Saudi Arabia and Kuwait being the top-performing markets.

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