Exports are vital to recovery
Exports have been a vital part of the U.S. meat and poultry industry for the past 20 years. They will be even more crucial in the coming year if the industry is to shake off the impact of recession at home and abroad. Yet the signs are not particularly encouraging that exports will recover quickly. An added dimension is the way in which Brazil continues to grow its meat and poultry industry with an eye to supplying the world with the three major proteins.
Export data so far this year reveal a mixed picture. There are several bright spots, but exports continue to struggle in key markets. Mexico remains the number one export market for beef, but volumes are well down on last year because of Mexico’s struggling economy.
Exports to South Korea remain weak. Shipments to Japan are up, but they remain well below 2003 levels.
More significant, a new government in Japan suggests it will be difficult to persuade Japan to lift its age restriction on U.S. beef.
Total beef exports might show a double-digit decline in 2009 from 2008. Expectations are for exports in 2010 to increase 7 percent. Much will depend on improved economies in the key markets mentioned above. Any increase will be vital for beef and cattle prices next year. Smaller pork exports are also a factor. Right now, a plethora of pork at home is causing downward pressure on wholesale beef prices, from cuts to trimmings.
This is putting pressure on live and feeder cattle prices, and even cow prices. Despite reduced cattle supplies, all prices are lower than expected because of weak beef demand at home and abroad.
One bright spot is the opportunity to export more beef to the European Union (EU) under a new 20,000 metric ton (MT) tariff-free annual quota. The U.S. is expected to ship about 12,000 MT in the first year of the quota, double the pace of the previous quota year, says the U.S. Meat Export Federation (USMEF). The new quota took effect Aug. 1 and August import license applications were for the full available amount of 2,000 MT. September import license applications were for 1,267 MT. During January- July 2009, import license applications averaged around 430 MT per month. USMEF bases its expectations for shipments under the quota in the first year on the fact that it has seen a surge in import license applications since the opening of the new quota, it says.
Italy and Germany are the primary markets for U.S. beef, with product now sold in more than 14 EU member states. It is making a steady return to the EU, says USMEF. As consumers and importers try U.S. beef, they recognize its quality and consistency and typically become repeat purchasers. U.S. beef is priced at a considerable premium to other beef in the EU but many EU consumers are prepared to consistently pay this premium, it says.
It will take time, though, to further develop the market on the end user and supply sides (non-hormone treated cattle production and EU-approved plants), says USMEF. But the number of approved non-hormone treated beef suppliers has been steadily increasing to meet the growing demand as U.S. beef becomes more prominent in the EU market. Complete carcass utilization/optimization will continue to be a key to expanding exports, it says. The inability to use pathogen reduction technologies (PRTs) will continue to be a challenge in the near term as alternative (cooked product) markets are often necessary for the non-PRT treated trimmings, it says.
EU exports, though, are a drop in the bucket compared to overall export volumes. Of more concern is the restricted trade to Japan. The industry would dearly love to rewind the clock back to that year when it sent 376,000 MT of beef worth $1.4 billion to Japan. This made it by far the largest market for U.S. beef. BSE then shut off all trade and it wasn’t until July 2006 that the U.S. finally agreed to Japan’s terms, to accept only U.S. beef from cattle under 21 months of age. Even after that, its strategy was to ask
Japan to lift all age restrictions as the next step. It even rejected an offer by Japan in late 2007 to raise the age limit to under 30 months. How wrong that was.
The result is that the U.S. is still not a major player in the Japanese beef business. U.S. beef exports to Japan in 2008 totaled 74,119 MT worth $383 million. This was only 20 percent of the volume shipped in 2003 and 27 percent of the value. U.S. shipments have increased modestly in 2009. But the age restriction and lack of cattle with required age verification records have kept a lid on exports.
This lid is unlikely to come off any time soon because of the historic change of government in Japan. The victorious Democratic Party of Japan (DPJ) has said it is opposed to any relaxation of the restrictions on U.S. beef imports. U.S. hopes of a relaxation were raised in May when Japan received its own “controlled risk” BSE status. This seemed to provide the Japan government a context by which to justify why it should lift the age limit. But now the government has changed and the DPJ is likely to keep the age limit in place. Politics again has triumphed over science, much to the dismay of the industry. — Steve Kay
(Steve Kay is Editor/Publisher of Cattle Buyers Weekly, an industry newsletter published at P.O. Box 2533, Petaluma, CA, 94953; 707/765-1725. Kay’s Korner appears exclusively in WLJ.)