Trade

South American exports slowly encroaching on US manufacturing beef market

Jon Condon, August 18, 2020

CURRENCY movements and current flatter demand out of China are helping push prices for Australian manufacturing beef into the US to lower levels.

The A$ closed trading yesterday at US72.2c, a 12.5pc appreciation versus the US$ over the past three months, and its highest level seen since February last year. That is making Australian imported manufacturing beef look relatively expensive against both US domestic product, and imports from alternate suppliers.

Since early June, imported lean grinding meat prices into the US have gradually fallen, as the US processing industry has got back on its feet following earlier closures due to COVID. Prices reached a 2020 peak of A$816c/kg at the end of May in the midst of US Plant closures, but have declined more than 17pc since then.

Prices for 90CL frozen lean were quoted by trade sources yesterday at US215c/lb CIF, delivered East Coast, worth the equivalent of around A$6.20/kg, FAS.

Some players described the present market for manufacturing beef as ‘steady’, rather than falling any further.

“The COVID-related beef plant closures in the US back in April and May certainly set the market for imported manufacturing meat on fire during the big handbrake on US production – but it also dampened demand and price pretty quickly when US processors got back to work,” a trade source said.

Traders said while the market was still very quiet, there had been a little buying interest at current levels. The absence of New Zealand beef in the market at present as part of NZ’s annual production cycle had supported that, as had low production generally in Australia.

Growing South American competition

Recent trade commentary makes it clear that beef exports out of South America are gradually on the rise in the US market, challenging traditional imported beef suppliers like Australia and New Zealand.

“South American volumes are coming off a low base, tonnage-wise, which is why the trend looks a bit startling,” an Australian export trader said yesterday. “But it’s fair to say that we are not used to competition in the US imported beef market from this region.”

There has been some speculation that Argentina may in fact fill its 20,000 tonne US beef quota this year, for the first time. If that happens, the price advantage over Australia might see Argentina continue to sell beef at full tariff rate into the US.

“Certainly Uruguay has done that at different stages in the past,” a trade source said.

Brazil currently exports to the US under the ‘other countries’ quota of 60,000t each year, shared with smaller players like Nicaragua, Costa Rica and others. Nicaragua is a regular shipper, in small quantities, into the US market.

“In a big year, Brazil could easily put 40,000 to 50,000t into the US under that quota, given how aggressively they ship – but the fact is that currently Brazil is heavily focussed on the China market,” the trade source said.

Record export volume

Last month, Brazil consigned more than 87,000t of beef to China, plus another 18,800t to Hong Kong, totalling almost 106,000t of beef consigned in a single month – probably the single largest one-month, country-to country beef trade the world has ever seen, a trader suggested to Beef Central.

At the same time as this dramatic rise in volume is occurring, price per tonne of Brazilian beef into China continues to drop away sharply, however. July shipments averaged $4315/tonne, the lowest price seen since mid-2017.

One of the key reasons why Brazil is consigning so much beef to China is its lack of access to alternate higher-paying volume markets like Japan, Korea and the US.

Over time, however, more of the major grinders operating in the US market are approving more plants for supply in South America. Another three large JBS plants in Brazil/Argentina were recently approved to service the Burger King chain in the US, for example.

“All of that is adding momentum to South American beef supply into the US,” an Australian trade source said.

“At a US15-17c/lb discount to equivalent Australian manufacturing beef at present, there are more US end-users electing to adopt South American product for the first time – they feel they have to do it.”

However, the more South American plants get approved for supply into the large US end-users, the narrower the price gap between Australian and South American beef was likely to become – both as an increase to the South Americans, and a detriment to Australia.

“It certainly isn’t the first time there’s been a looming threat out of South America for market share in the US imported trade. In the past, though, that’s been defused by disease issues, or food safety inspection concerns such as Brazil’s ‘Weak Flesh’ meat inspection corruption scandal.”

“But that won’t inevitably happen again – this new competition may be the new norm for Australian exports into the US. If anybody was planning to launch a new US export business on the expectation of no competition out of South America, I think they would be a little foolhardy – even if volumes are not likely to be all that significant for the timebeing.”

Hygiene-wise, and reliability of shipping wise, Australia still maintained a distinct reputational advantage in the US market, but South American product was not likely to go away in the US market, any time soon, at current price levels.

China diversion

Also contributing to the recent US imported market price trend is exporter diversion out of the China market, due to voluntary or formal plant suspensions and other COVID-related matters. Australia’s exports to China last month were down 26pc on the previous month, to 12,500t. That has served to take some of the competitive tension out of the market from US customers, Beef Central was told.

Steiner Consulting’s weekly US imported beef report points out that imported trim volume levels into the US are still quite high, year-on-year.

Because of COVID absenteeism in US plants, the US simply did not have the labour to pull as many cuts, trim them, and bag and pack them,” a trade source said. “That continues to push more domestic material into bins (destined for grinding), keeping a lid on imported price.”

“It’s keeping the US domestic retail mince market pretty well full, and being utilised. And unlike the restaurant end of the food service sector, the quick-service restaurants (ie burger outlets), while still very cautious, are still doing OK in the US, despite COVID.”

Light trading

This week’s Steiner US imported beef market report says trading was generally light on limited manufacturing meat offerings from Australia last week, noting that New Zealand supplies are seasonally limited at this time.

“US importers have been buying aggressively in Argentina, but at this time we are being told that quota is close to being filled,” Steiner said.

“Until now the availability of South American product was seen as part of the reason for the downward pressure on imported values. While possible, we think the main factor has been the decline in domestic lean beef prices,” it said.

It was hard to know how much beef Argentine packers would be willing to ship to the US out-of-quota, Steiner said.

However the strong US$ and relatively high value of US lean beef might encourage some out-of-quota product to continue to flow.

A fortnight ago Reuters reported that seven Argentine meat processing plants had temporarily suspended shipping product to China due to COVID-19 infection among workers.

If these were beef plants (species was not identified in the Reuters reports), given the volume of beef Argentina ships to China, Steiner said temporary lack of access to the Chinese market might divert more product to the US, regardless of the quota availability.

Meanwhile imports to the US from all supplier countries continued to increase, with volumes in the last four weeks averaging 27,700t/week, 35pc higher than a year ago.

“The increase in imports has been broad-based, with both Australia and New Zealand imports up compared to a year ago. Additionally, we continue to see more availability from Central America and Ireland. The increase in imported beef supplies and the decline in domestic lean beef prices have so far made it difficult to set a bottom under the imported beef market,” Steiner said.

US domestic beef production had now mostly recovered from earlier setbacks caused by COVID, even as daily slaughter remained under year-ago levels, Steiner said.

Packers were running more shifts on Saturdays to offset the reduction in capacity per shift, due to new COVID mitigation measures. Fed cattle in the US also continued to come to market at heavier weights, Steiner said. In May and June fed cattle carcase weights were as much as 5pc higher than a year ago, while current weights are about 2pc over last year’s levels.

“But even as slaughter has improved, packers continue to struggle with labour availability in their trimming/fabrication lines. There are also reports that the new measures taken have negatively impacted productivity and yields. We think that this has increased the amount of beef currently going into the grinder,” Steiner said.

As a result, it was somewhat surprising that lean beef prices have been trending lower even as cow slaughter is down from a year ago.

“It is important to consider the impact that the overall increase in fed beef production has had on the market,” Steiner said. “We think more fed beef cuts are currently going into the grinder for two reasons: limited labour to trim and the need to put a floor under the price of round and chuck cuts.”

Ample imported beef supplies, domestic US beef production near year-ago levels and above average price multiples to the cut-out made it difficult to reverse the trend in lean beef values, at least in the near term, Steiner said.

US retailers had kept prices for ground beef above year ago levels, even as supply growth has recovered.

In part this was due to the shift in demand towards retail sales out of food service, Steiner said.

“While this was sustainable during the summer months thanks to higher grilling season demand, the seasonal demand shift and high retail prices could result in a slowdown in volume sales and lower prices may be needed to clear the market.”

 

 

 

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Comments

  1. Brad Bellinger, August 18, 2020

    Good article ,good info ,thanks BC

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