February 2, 2004

 

 

Mexico's US Beef Imports Set To Fall

 

Mexico's imports of US beef are expected to plummet 80% to 100,000 metric tons due to Mexico's decision to ban imports of U.S. beef following the detection of bovine spongiform encephalopathy, or mad-cow disease, in the state of Washington, according to a U.S. Department of Agriculture attache report issued Friday.

 

In response, Mexico's 2004 exports of cattle to the United States are forecast to drop by one million head as producers are expected keep their cattle in Mexico in an effort to increase domestic beef production. Pork consumption is forecast higher as retailers are likely to increase the availability of pork in supermarkets. The government of Mexico has not yet made a decision concerning requests from the Mexican beef and pork industries to respectively impose a safeguard and anti-dumping tariffs on imports.

 

Live Cattle and Beef

 

The forecasts for CY 2004 in this report reflect the current total ban on U.S. live cattle and beef exports to Mexico. This report assumes that the ban will be in place indefinitely. The closure of Mexico's borders to U.S. cattle and beef on December 24, 2003, following the discovery of a single case of Bovine Spongiform Encephalopathy (BSE) in Washington State could be profitable for Mexico's beef and related industries, at least in the short term. To increase the supply of domestically produced beef, for CY 2004, it's expected that Mexico's cattle industry will retain 80 percent of the approximately 1.25 million head of live cattle that, in the absence of the BSE discovery, were forecast to be exported live to the United States.

 

Total Mexican beef imports in CY 2004 are expected to be only from non-BSE infected countries, such as New Australia, New Zealand, Nicaragua, Chile, and possibly from certain areas of Uruguay that are free of Foot and Mouth Disease. However, the tonnage will be minimal compared to what was imported from the U.S. in CY 2003. U.S. beef exports to Mexico for CY 2004 are forecast to fall to zero. Therefore, imports for CY 2004 are expected to decline from our previous forecast of 510,000 metric tons to 100,000 metric tons.

 

Live Hogs and Pork

 

The outlook for CY 2004 points to Mexican pork output reaching 1.2 million metric tons, an increase of about 9 percent above the estimated CY 2003 level of 1.1 million metric tons.

 

Inventories are expected to continue building through the first part of CY 2004 before slaughter rates increase to meet anticipated stronger consumer demand due to the BSE situation.

 

Estimated live hog imports during CY 2003 were 50 percent less than in CY 2002 due to improved productivity from vertically integrated operations that brought domestic swine inventories up during CY 2003, thus reducing the need for imports. With the assumption that pork consumption will increase due to the BSE ban on beef imports from the U.S. and price increases of domestically produced beef, it is expected that 150,000 U.S. and Canadian hogs will be imported live to Mexico during CY 2004, an increase of 25 percent over 2003.

 

Cattle and Beef

 

Note: This report assumes that Mexico's December 24, 2003, ban on imports of U.S. beef and live cattle will be in effect indefinitely. See MX4006 for a complete listing of banned products.

 

More Cattle to Stay in Mexico

 

Mexico's ban on imports of beef and live cattle is expected to significantly reduce exports of cattle to the United States during 2004. Mexican cattle are typically exported for fattening, finishing, and eventual slaughter in the United States. However, diminished U.S. cattle demand stemming from the loss of beef export markets, coupled with a steep reduction in Mexican imports of beef, is expected to cause Mexican cattlemen to feed and slaughter more of their cattle in Mexico in an effort to increase the supply of domestically produced beef.

 

Mexican cattlemen are still assessing their cattle export potential in light of the ban on imported U.S. beef, but at this stage it appears that there will be a significant drop in cattle exports.

 

Northern Mexico has been suffering from a drought for several years and Mexican feed compounders are largely reliant on imported corn and soybean meal for their rations, which makes the cost of finishing somewhat higher in Mexico. Consequently, it's expected that cattle staying in Mexico will likely be slaughtered at weights below those typically achieved in U.S. feedlots.

 

Consumption Expected to Drop Only Slightly

 

Increases in the slaughter of domestic cattle are expected to enable domestic cattlemen to increase supply in the short term. As a result, overall beef consumption is expected to decline only marginally in 2004. Consumer and media reaction seems to be one of confidence in the safety of Mexican beef. Therefore, beef prices and beef quality, rather than consumer concerns over food safety, are likely to have the primary effect on consumption.

 

Most media reaction has focused on the stated objective of Mexican cattlemen to expand the supply of domestic beef and the "pressure" from the United States to re-open the market.

 

While there is no published source for timely beef prices in Mexico, average retail prices are up nearly 15 percent, average carcass prices are up 14 percent, and prices in outdoor public market are up about 9 percent. Supermarkets have begun to make more pork and poultry products available to consumers. It's not yet clear if prices for pork and chicken will rise along with beef prices, but poultry prices have increased and it is certainly possible that prices for all meats will be up while the ban is in effect. In response, middle-income consumers are expected to make a modest shift to cheaper pork and poultry and overall meat consumption is expected to increase at a slower rate than in recent years.

 

Retailers, particularly supermarkets (which sell about 50 percent of the beef consumed in Mexico), accustomed to dealing with the consistent quality and relative ease of handling imported boxed beef, are concerned about the quality of Mexican beef which is typically supplied in whole carcasses with no differentiation by carcass type or weight. Supermarkets will have to pay for unwanted cuts and hire more butchers to process carcasses, adding to the cost of handling domestically produced beef.

 

Mexico's tourist and restaurant industries relied heavily on U.S. beef and will be hard hit by the ban. Suppliers and distributors are expected to look for alternate foreign suppliers and the domestic market, but will likely have to sacrifice quality, and in some cases do without.

 

Mexico is one of the world's largest consumers of offals and some areas of the country depended on imports for 50 percent of their offals. Reduced offal supplies hit lower income consumers the hardest, many of whom may shift to beans as a protein source.

 

Trade

 

The U.S. was the major exporter of beef to Mexico and 2004 beef imports are expected to plummet as a result of the ban. Importers are expected to source limited additional supplies from Canada, Foot and Mouth Disease-free areas of Uruguay, Australia, Nicaragua, Chile, and New Zealand. However, the feeling among importers is that many of these countries will also be supplying other countries that have banned U.S. beef imports and competition for exportable supplies will be stiff.

 

Mexico's cattle imports dropped during 2003 as lower cattle exports during 2002 led to a greater supply of domestic cattle in 2002. Imports are expected to drop again during 2004 in response to the ban on cattle imports from the United States following the detection of BSE.

 

Policy

 

The U.S. government, last year, held WTO consultations on Mexico's anti- dumping procedures as they relate to beef and has requested the formation of a WTO dispute settlement panel to review Mexico's dumping procedures. Mexico's beef industry has petitioned the government for a safeguard investigation of U.S. beef imports. The government has not yet made a decision regarding the industry's request. Furthermore, the NAFTA beef panel decision on the antidumping tariffs has been postponed several times and is now scheduled for March 1, 2004.

 

Hogs and Pork

 

Slaughter rates are expected to increase in 2004 in response to the ban on imports of U.S. beef. As a result, ending hog inventories are expected to drop well below the 2003 level. Retailers and consumers are expected to shift to pork to compensate for diminished beef supplies and higher beef prices. Pork consumption is forecast higher and per capita consumption is expected to rise as upper and middle-income consumers shift to cheaper pork in the face of the beef ban.

 

Imports of live hogs and pork are also forecast higher as producers and retailers seek to increase production and supplies. The United States is expected to continue as the major pork supplier. U.S. pork accounted for 85 percent of the exports to Mexico through late 2003.

 

The Government of Mexico has not yet made a formal decision concerning the petition from the domestic pork industry to impose anti-dumping tariffs on U.S. exports of pork.