A GRADUAL rise this year in the value of imported lean grinding beef in the US is providing some encouragement for Australian exporters, but analysts are now considering where supply is likely to come from in 2016, in light of Australia’s production dilemma.
In Australian dollar terms, the imported 90CL frozen lean cow trim price was reported at 606.9c/kg on Thursday, another 4c higher than the week before and a 55c/kg improvement since the start of the year. While that’s an encouraging, if modest improvement, it is on low volumes, and remains well short of the market level seen during most of 2015.
Despite currency movement headwinds, this week’s price reached US196c/lb in US$ terms, 2.5c up on the previous week.
US market watchers this week reported firm offerings from overseas packers, while US end-user inquiries remained light and mostly for lean and extra lean product. Fattier trim prices in the US continued to be weak last week, and that has limited demand for imported fatty trimmings.
In its weekly imported grinding beef report, Steiner Consulting said market participants noted how difficult it was to get product bought overseas.
“Australian packers have been holding firm in their offers since the beginning of the year, noting high cattle prices in Australia and prospects for reduced slaughter,” Steiner’s report said.
More recently, however, offerings from New Zealand had also been limited, while Uruguayan packers appeared content to ship modest volumes to the US in line with the country’s available quota.
“There is little push on the part of overseas exporters to get volume sold, with many content to wait for the normal seasonal improvement in demand and prices in the US in March and early April,” Steiner said.
At this early stage, it is looking extremely unlikely that US quota will be an issue for Australian exports this year, unlike 2015.
Based on recent projections, and Australia’s cattle herd reduction to 20-year lows due to drought, Steiner suggests imports of Australian beef to the US this year (shipments against the 2016 quota) could amount to around 317,000 tonnes.
That would seem like a reasonable volume, but consider that through mid-February Australian packers had already shipped around 70,000t against the 2016 quota (part of that carried over from late last year, to escape triggering the tariff).
This leaves around 248,000t of Australian beef to be shipped between now and late November (10 months), for a monthly average volume of 24,800t.
“This could be the case, but much will depend on the level of Australian slaughter this year,” Steiner said. “If slaughter pushes above 150,000 head per week, volume of shipments to the US may not decline as much as some expect.”
Current commercial decisions being made by Australian export processors to wind-back killing capacity in the face of meagre cattle supply are making that look unlikely.
Shifts in US imported beef supplies this year
The US Department of Agriculture recently projected total US beef imports down 15.5pc in 2016.
With that in mind, Steiner compiled the table published below to try to look at the overall picture of US beef imports in 2016, using the official USDA forecast.
The country forecasts are Steiner’s attempt to infer individual country projections that would ‘match’ with the total USDA forecast.
Steiner said the latest USDA forecast of a 15.5pc decline in total beef imports implied a reduction of 175,000t (product weight basis) from a year ago.
“However, it’s important to note that while this decline indeed is quite significant, it is not far from the volume of beef that was imported in 2014. Because much of the increase in beef imports in 2015 was due to Australia, it would make sense that lower Australian imports are driving the forecast for 2016,” it said.
A 25pc reduction in Australian beef imports would imply a year-over-year decline of around 106,000t. Based on this projection, imports of Australian beef in the US (shipments against the 2016 quota) amount to around 317,000t.
Steiner suggested it was reasonable to expect a modest decline, also in New Zealand shipments to the US this year (-4pc forecast), especially given the rise of China as a major destination for NZ beef. Slaughter in New Zealand also was front-loaded, with more cattle coming to market in August—November of 2015.
Dairy prices and general economic conditions globally would be a critical factor for NZ exports to the US this year. Moisture conditions so far appeared to be on par, if not better, than a year ago.
Then there is the issue of beef imports from Canada and Mexico.
Steiner said the Mexican cattle herd was down sharply and expectations were that Mexican packers will not be able to sustain the level of exports to the US. It suggested a -17pc decline in beef imports from Mexico this year. However, a further deterioration in economic conditions in Mexico would mean steady declines in Mexican domestic beef consumption and a larger share of the beef supply going to the US.
Already there had been notable substitution of pork and chicken for beef in Mexico.
“The decline in Mexican beef imports may not be as large as we project, this is certainly a risk to our overall forecast. As for Uruguay, we think that exports will return back to quota levels now that imported beef prices in the US have pulled-back,” Steiner said.
China, Brazil add uncertainty to forecast
One of the big risks to the forecast was if China for some reason cuts back sharply on its beef imports this year.
“China is the main destination for Uruguayan beef and a collapse of shipments there could push more product into the US, even with the higher tariff that applies,” Steiner said.
Finally, the elephant in the room is Brazil. For Steiner’s table and forecast published above, it has put Brazilian beef export growth at zero in 2016.
“This is so that overall exports would balance, but also to highlight how important this supplier is,” the report said.
In 2015, Brazil shipped 36,700t of beef to the US, all of it in cooked form for disease risk reasons.
“But if Brazilian plants were to gain certification to ship beef to the US this year, there is the potential for an additional 40,000t to 50,000t coming to the US in 2016,” Steiner suggested.
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