Surge in exports to US continues in March

Jon Condon, 03/04/2012

Source: CME GroupAustralia’s resurgent beef trade to the US in 2012 has continued in March, with monthly exports totalling 26,786 tonnes – a 12 percent rise on February trade, and more than 40pc higher than March last year.

Illustrating the high demand for lean grinding beef out of the US at present is the statistic that just 10.9pc of last month’s exports to the US was chilled: the frozen (mostly manufacturing) component accounted for almost 24,000t alone.

First quarter (January-March) trade with the US tells an even more complete story. The first quarter last year saw Australian exporters write business totalling 35,144t, compared with 61,900t for the same three-month period in 2012.

While the March monthly shipment data has probably come a little late to capture the latest US sentiment over the Lean Finely Textured Beef crisis (see yesterday’s story, “Australia in box seat as LFTB drama unfolds”) the result is arguably more reflective of the decline in herd size and calf turnoff due to US drought and other factors.

What makes recent trade with the US even more remarkable is that it is occurring despite all-time record prices being paid for imported grinding beef, in US$ terms.

Last year, beef imports into the US declined sharply, particularly in the first half of the year on very limited Australian supplies. However imported supplies have improved substantially compared to a year ago, albeit still lower than 2009 levels.

First signs of US herd rebuild

While US beef supplies are forecast to be tight through 2012, the cycle may have started to turn.
US beef producers have started the early stages of herd expansion, ag economist Professor Chris Hurt, from Purdue University’s extension service told media last week.

US beef cow numbers have dropped by 9pc, or 3 million head, since 2007 – and declined by 3pc in 2011 alone – meaning a smaller calf crop in 2012 and lower slaughter numbers through to 2014.

Strong finished cattle prices and moderating feed costs had driven some producers to start rebuilding, though.

Producers had reduced their herds in recent years primarily because of escalating feed costs since 2007 and last year’s drought in the Southern Plains, Prof Hurt said.

According to a January USDA cattle report, beef heifer retention has increased 1pc — a sign that US producers are again starting to expand. If US crop yields return closer to normal during 2012, feed prices could come down even more, which would encourage further herd expansion, he said.

“This is the first increase in heifer retention since feed prices began increasing,” Prof Hurt said.

While higher retention rates would seem to suggest lower finished cattle prices in 2012, he said the opposite was likely true. Beef producers retaining heifers results in lower slaughter supplies and, ultimately, lower beef supplies. With a reduction in cow numbers, the calf crop could be down more than 2pc in 2012, and if heifer retention continues in 2012 and 2013, US domestic beef supplies might not increase until 2015.

Currency movements aside, that will only enhance demand for imported beef supply from exporters like Australia and NZ. 

“The modest heifer retention now is actually a price-enhancing factor in the short run,” Prof Hurt said.

“Look for US finished cattle prices to push into the higher US$120s in the (northern hemisphere) spring, moderate to the mid-$120s this summer, and finish the year near $130. Spring highs in 2013 could climb to the low US$130s,” he said.

Despite the high finished cattle price projections, Prof Hurt said US producers needed to keep an eye on the weather and 2012 crop yields before making further expansion plans. Producers in the US Southern Plains should watch for a return to drought conditions, he warned, while producers nationwide need to watch crop progress. Forecasters were suggesting that a region of the western Corn Belt could continue to be ‘very dry’ into the spring.

That raised concerns for corn and soybean meal prices, Prof Hurt said, which would depress cattle prices.

March exports to other markets

Getting back on track in this morning’s coverage of March beef exports, total Australian offshore trade to all destinations for the month reached 83,373t, according to DAFF statistics, up from 78,704t in February and 47,000t in January, as processing activity gains seasonal momentum after some significant rain disruptions.

The February 2012 figure was even higher than the same month last year (77,125t), when Australian processing rates were hitting two-year highs, due to strong international beef demand. Weekly February kills last year averaged just shy of 150,000 head. In comparison March weekly kill figures this year across the five reported eastern and southern States averaged 129,400 head, influenced mostly by rain-driven cattle access issues.

A significant feature of current Australian exports is the growing frozen component, as the momentum in manufacturing beef exports continues. So great is the emphasis on frozen trade at present that frozen cold storage space around major departure points like Port of Brisbane was last month reported to be in short supply.

As discussed on Beef Central earlier, there has been clear evidence of diversion of lesser primal cuts like rounds and chucks into the grinding meat market to keep pace with current US demand, especially while traditional markets like Korea and Japan are so subdued.

Trade to Japan grows during March

There was a modest rise in Australian trading volumes into Japan during March, with total exports reaching 25,028t, about 1500t better than February. The result was still a long way short of March last year, however, when exporters consigned 31,825t (March marked the transition period in trade last year, following Japan’s earthquake/Tsunami disaster, after which trade dropped away dramatically.)

Trading conditions for Australian beef in Japan remained difficult last month, with increasing shipments from competitively-priced US exporters, and the robust A$ making Japanese buyers extremely cautious about their commitment to Australian beef.

Australia’s exports to Korea in March reached only a disappointing 7921t, falling well below March 2011’s historically high shipment figure of 16,555t and even more typical March 2010 exports (11,173t).

Part of that can be attributed to an expectation around mid-month among Korean traders and importers of a 2.6pc tariff advantage in US beef, following the March 15 activation of the Korea-US Free Trade Agreement, which puts Australia at a competitive disadvantage.

The slowing export volumes from Australia last month can also be attributed to ongoing sluggish Korean consumer demand, and the high stocks for some imported beef cuts in the wholesale market. Prices for imported beef cuts in the Korean wholesale market were trending lower last week, with most below year-ago prices.

According to Korean news sources, major Korean retailers have reported that the initial tariff reduction on US beef resulting from the implementation of the KORUS FTA has not impacted US prices at retail.

Other markets

Other export market customers showed mixed results in February, but the general trend was upwards from seasonally-slower February trade.

Total Middle Eastern exports last month reached 3038t, a solid rise from 2210t in February, with heaviest trade into Dubai and Jordan. The Middle Eastern trade was also up about 20pc on March figures last year. 

Total exports to the EU in March reached 1025t, up from 920t in February, and a small improvement on 848t this time last year.

The latest EU Commission Short Term Outlook forecasts that EU cattle prices will remain high in 2012, despite a decline in exports of both meat and live animals. The Commission says it expects domestic carcase prices for all categories to remain higher throughout 2012, due largely to limited supplies.

EU beef production is forecast at 7.92MT for 2012, down 4pc on 2011. After a strong year for beef exports in 2011, particularly to Russia and Turkey, EU beef shipments are predicted to contract 29pc in 2012.

In contrast, EU beef imports are forecast to recover somewhat in 2012, as tight domestic supply and a gradual recovery in availability of supply from traditional suppliers helps to rejuvenate import volumes. However, while imports are forecast to increase 10pc in 2012, overall EU per-capita beef consumption is still predicted to fall another 2pc due to economic pressures.
 

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