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Drought Sees Imports Increase, Liquidation Continue

16 March 2012

MEXICO - The drought that is affecting the Southern Plains extends into central Mexico. Oklahoma State University Extension Livestock Marketing Specialist Derrell Peel says dry conditions are significantly impacting their cattle industry and may support growth in beef imports.

Drought conditions in northern Mexico remain very severe and the region has shared little of the moisture that has been received this winter in some parts of Texas and Oklahoma. Though no comprehensive data is available, indications from producers in northern Mexico indicate that significant herd liquidation is taking place across the region.

There is little doubt that the 1.42 million head of Mexican cattle imports in 2011, the largest annual import total since 1995, was significantly enhanced by the drought. This level of imports is not sustainable and will be offset by sharply reduced imports in the future.

However, without better data, is uncertain how much additional liquidation might occur in 2012 if the drought persists and thus what level of imports might be possible this year. Mr Peel suspects that imports may drop some from 2011 levels but weekly data so far this year indicates that Mexican cattle imports are currently up 27 per cent year to date from last year. Certainly strong US cattle prices will attract Mexican feeder cattle if there are cattle available for export.

Data from the USDA Foreign Agriculture Service indicates that beef production in Mexico increased by 4.5 per cent in 2011 compared to a year earlier. It is very likely that some of this increase is also due to drought-forced liquidation. Anecdotal reports from Mexico indicate that cow slaughter is up indicating that the drought extends beyond increased feeder cattle exports and suggests significant herd reduction.

At the same, beef consumption in Mexico, which was negatively impacted by the recession in 2009, remains weak and decreased an additional 2.8 per cent in 2011 from 2010 levels. US beef exports to Mexico have decreased since 2008 and the combination of decreased consumption and drought-enhanced beef production in 2011 explains why Mexican imports of US beef in 2011 was virtually unchanged from the previous year.

These changes in beef consumption and production in Mexico have also brought the country much closer to a balance between consumption and production. The data indicate that production fell short of consumption by a mere three per cent in 2011. This contrasts with 2008, when domestic production in the country fell short of consumption by 18 per cent.

Mexico remains one of the major export markets for US beef despite dropping to second place in 2011 following sharp growth in exports to Canada, Japan and South Korea (Canada is the top export market by a small amount).

However, something new has emerged in the market. In the last two years, US imports of Mexican beef have increased sharply and Mexico was the fourth largest source of beef imports into the US in 2011. US imports of Mexican beef are up over 250 per cent since 2008, from very small beginning levels.

The US is still a significant net exporter of beef to Mexico (488 million pounds of exports compared to 155 million pounds of imports). However, the change to bilateral trade of beef products indicates that the economic basis for beef trade with Mexico is changing. Trade is becoming less focused on supplying production deficits Mexico and is evolving more into trade to improve product mix and enhance value in both markets.

Beef consumption in Mexico is tied closely to general macroeconomic conditions, much as it is in the US Mexican beef consumption will likely stabilise and recover somewhat in the next year or two given continued, albeit slow, recovery of the Mexican economy.

The drought impacts suggest that both beef production and cattle exports will likely drop at some point in the future perhaps in 2012 if persistent drought does not provoke additional culling conditions.

The consumption gap may widen once again and support continued beef imports in Mexico. However, the potential for boxed beef trade to support product specific beef trade means that there will continue to be opportunities for bilateral trade of beef between the US and Mexico.

TheCattleSite News Desk



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