A monthly column written exclusively for Beef Central by US Cattle Buyers' Weekly editor, Steve Kay
THE beef industries of Australia and the US are half a world apart in geographical terms.
But both have been affected by severe drought in recent years, and both are more dependent than ever on what consumers at home and abroad are prepared to pay for beef.
Australia has just come off its hottest year in history and a drought that forced more cattle than expected to market. One result, as you know by reading Beef Central, is that Australian beef exports in 2013 soared to a record 1.099 million tonnes.
If you omit India, which exports carabeef (from buffalo), this kept Australian firmly in place as the world’s second largest beef exporting nation after Brazil.
The US was third but its exports, including variety meats, exceeded their 2012 record of US $5.51 billion.
This made the US the world’s largest beef exporter in value terms, as Australia and Brazil exports large volumes of grassfed beef which is priced lower than US grain-fed product.
The US value record came despite tonnage being just under the 2003 record. It occurred thanks to a recovering global economy and Japan’s relaxation of its age limit on US beef.
It was also a reminder of the importance of beef demand in even small markets like the Caribbean or Chile, and that there is a growing global appetite for high quality, grainfed beef.
The US hasn’t got this market to itself. Australia, Canada and Mexico are sizeable producers of grainfed beef. But no one comes close to producing the estimated 9.7 million tonnes (carcase weight equivalent) the US produced in 2013. This was likely more than all the beef that Brazil produced last year.
The global beef market this year will again contain numerous segments that will support a wide variety of beef items. These will range from fine dining to fast-food chains.
There will be a place in each segment for grainfed or grassfed cuts, for other parts of the carcase, and particularly for lean manufacturing beef.
Global beef production is expected to be up only slightly in 2014 from 2013. Latest USDA data puts it at 58.62 million tonnes versus 58.48 million tonnes. Should global demand continue to improve, i.e., consumers are able to pay more for beef, wholesale beef prices globally will increase again in 2014.
US exports however might struggle this year to top 2013’s record values. Domestic production might be down 4-5pc, so there will be less product available for export. Prices will inevitably be higher, and will be even higher for foreign buyers if the US dollar remains strong against the Brazilian real and the Australian, Canadian and New Zealand dollars.
Japan will remain the largest market for US beef but its huge year-on-year increase in imports in 2012 won’t be repeated.
One positive for US exports is the likely re-opening of the Russian and Chinese markets.
Negotiations with both countries intensified at the end of 2013. USDA says the intention is to restore market access to China by the middle of 2014. But the US is likely to sell only a small amount of beef to China, as most of its beef will be too expensive relative to Australian beef.
Australia saw a huge surge in its beef exports to China in 2013 (154,800 tonnes versus 32,900 tonnes the prior year, as reported earlier by Beef Central) and will likely maintain its dominant position in the import market there this year.
One big difference between the Australian and US industries is that the former exports more than 60pc of its production and the latter only 12pc (cuts and variety meats).
So US domestic demand will determine the financial fortunes of everyone from retailers to ranchers in the US this year.
US consumers 'step-up to the plate'
Americans literally ‘stepped-up to the plate’ in 2013 when it came to accepting higher beef prices at the grocery store and in restaurants.
After a decent first half of the year in demand terms, the second half proved that beef eaters were prepared to pay more to be able to enjoy their favourite protein. The beef industry will be hoping they do so again this year.
There was much angst at the start of 2013 about consumers’ ability to pay more for beef. That angst was unfounded and the second half saw consumers opening their wallet.
This helped USDA’s All Fresh beef price set a new monthly high of US$5.01 per pound in November. This was up 4.4pc from the previous November. Right now, economists are cautiously optimistic that the US economy will see somewhat better growth in 2014 than last year.
GDP gains will be a critical barometer, as consumer spending accounts for more than 60pc of GDP. Unemployment is still historically high and the beef industry will be hoping that employers add a lot more jobs than they did in 2013.
Housing values recovered more strongly than expected last year. They will need to continue to improve so that consumers feel more comfortable about their debt to equity ratios and feel they have more money to spend on food, especially beef.