7.3. Australian cattle industry projections - beef exports United States
After a decade of declining shipments, Australian beef and veal exports to the US are forecast to increase in 2012. Attracted by historically high prices for manufacturing beef and on the foundation of a very tight supply of beef in the US, Australian shipments are anticipated to increase 28% on 2011, to 215,000 tonnes swt.
There are also some major hurdles for Australian exports to the US in 2012, including the tentative state of the US economy and consumer spending, the high A$ and increased E.coli testing requirements.
Despite finishing the year on a positive note, Australian beef and veal exports to the US in 2011 totalled 167,800 tonnes swt – a decline of 9% on the previous year and the lowest annual total since the late 1960s.
While the decline in shipments throughout the past decade has been due to many factors, most notably the A$, the fall in the past 12 months has been assisted by burgeoning demand for manufacturing beef in other markets.
While the US had always been the market leader for manufacturing beef, recent years have seen this influence diminish. Competition for manufacturing beef has increased from many markets, ranging from the major importing markets of Japan and Russia, to a collection of smaller (but growing) markets, such as those in the Middle East, the Philippines and Indonesia.
Manufacturing beef shipments made up 62% of Australian beef exports to the US in 2011, similar to the proportion in 2010. The majority of other exports for the year were thin flank (12%), topside/insides (8%), shin/shank (5%) and silverside/outsides (4%). Frozen beef made up 83% of total exports for the year.
When the volume of beef sent to the US in 2011 is matched with the prices being offered, a question could be raised as to why more product wasn’t shipped to the US.
In US$ terms, indicative imported beef prices for 2011 exceeded previous records, averaging 18% higher for 90CL Australian cow beef and between 16-26% higher for a range of other cuts. Putting the price rise in context, 90CL beef averaged 191.4US¢/lb FAS for the year – 18% above the previous calendar year high set in 2010, of 161.3¢/lb FAS, and 36% above the five year average.
Once the record run of the A$ is taken into account, 2011 beef prices into the US increased 7% on the previous year, at 381.5A¢/kg FAS. This was the second highest calendar year average on record, pipped by 2001, at 381.9A¢/kg FAS – when the A$ averaged close to 50US¢ and shipments totalled 397,000 tonnes swt.
While the higher prices in the US would have been welcomed by Australian exporters, the higher A$ significantly eroded the benefit delivered by the record US prices on offer. Adding to this was the price differential with other markets for manufacturing beef, which made it more attractive to ship product to markets other than the US. Exporting to the US has been made more difficult and costly by additional production and testing requirements, resulting from safety issues with locally produced US beef over recent years.
Driving the higher prices in the US for some period has been a declining US cattle herd and beef production. A severe drought across the southern states contributed to some additional cattle being slaughtered in 2011, with the US cattle herd falling to its lowest level in over 50 years.
In 2012, the US cattle herd is forecast to fall to 91.45 million head – down 1.3% on the previous year and five million head less than five years earlier (USDA). Adding to the decline in the cattle population is the expectation that the calf crop will also hit a 50 year low, at 34.7 million head (USDA).
Given the expected lower cattle throughput for 2012, the USDA has forecast total beef and veal production for the US will decline 5% on the previous year, to 11.322 million tonnes cwt. To put this in context, the decline of 560,000 tonnes cwt is more than one-quarter of Australia’s annual beef production.
This tight supply of cattle pushed US cattle and beef prices higher in 2011, even during a period when the consumer was increasingly price conscious. Feeder cattle prices during 2011 average of 22% higher, at 134US¢/lb liveweight. Similarly, cow prices averaged 21% higher for 2011, while choice steer (finished cattle) prices averaged 20% higher on the previous year. Prices for all categories were calendar year records.
With the anticipated tight supply of beef, US cattle and beef prices are forecast to increase again in 2012. This will help make the US market a little more attractive to Australian exporters. Australian exports to the US increased substantially in the final few months of 2011, the result of both a stable A$ and sustained higher export prices being offered.
The USDA anticipates total beef imports for 2012 to increase 2%, to 948,000 tonnes cwt.
Contributing to the tighter supply of beef on the US market in 2012 and forecast higher prices, is the expectation that US beef exports will sustain the record levels reached in 2011 – at 1.26 million tonnes cwt – fuelled by the very weak US dollar and possible market access improvements to Japan (likely change to age restriction) and Korea (FTA).
One of the huge questions that hangs over the US beef market in 2012 is how will consumers react to the prospect of having to pay higher beef prices, given the state of the US economy and tentative demand? The USDA expects the US consumer to react by eating less beef, with total consumption expected to fall 5% in 2012.
The influence the US beef industry has on the functioning of global beef markets will again be significant throughout 2012. As the world largest producer of beef, second largest exporter (behind Australia in 2011), and second largest importer, what occurs in the US influences all markets. For Australia, this is amplified by the fact that not only is the US our second largest export market for beef, it is also our main competitor in Japan and Korea.
With the US cattle herd expected to stabilise in coming years, and eventually start slowly rebuilding, US demand for Australian beef is anticipated to improve over the medium term. The forecast 28% increase in shipments in 2012 will make the US one of Australia’s fastest growing beef markets, but the forecast 215,000 tonnes swt is still a historically low volume – leaving plenty of scope for further increases in subsequent years. But as seen in 2011, the level of the A$, testing requirements for Australian beef, competition from other markets and the state of the US consumer will all weigh heavily on shipments into the future.
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