Mexican cattle industry continues to face drought threat

Drought continues to threaten major Mexico's cattle producing regions despite slight recovery in first half of 2012 from the rising grain prices and extreme weather conditions last year.

With the onset of the drought last year, Mexican beef production in 2011 was estimated to have increased 4.2% on-year, to 1.83 million tonnes cwt.

Following the increase in cattle slaughter and beef production in 2011, the continuation of the drought is again expected to drive higher cattle turnoff in 2012, either through domestic processing plants or as live cattle movements across the border to the US.

With the drought, the degrading of traditional grazing lands, combined with higher feed prices has forced many producers into liquidating cattle herds, as reported by Business Monitor International (BMI). In response to this, in March 2012, the Mexican Ministry of Agriculture, Livestock, Rural Development, Fisheries and Food unveiled a new project designed to convert and restore grazing lands in areas hit hard by drought.

With the influence of the tougher feed conditions and increased turn-off at earlier age, lighter carcase weights in 2012 are expected to offset any increase in slaughter numbers. The Mexican beef production in 2012 is forecast to be largely unchanged on 2011, at 1.83 million tonnes. However, between 2011 and 2016 Mexican beef production is forecast to grow by only a modest 5.4%, to 1.92 million tonnes.

BMI also estimates that Mexican beef consumption was stable at 1.94 million tonnes in 2011, underpinned by an increase in consumer purchasing power. However, for 2012, tighter supplies and forecast higher beef prices is expected to see beef consumption decline by 2.8% on-year to 1.89 million tonnes. The decline in 2012 is however expected to be short lived, with higher beef consumption in subsequent years again fuelled by an expected increase in consumer incomes, rising to 2.01 million tonnes by 2016.

During 2011, Mexico exported 104,463 tonnes of beef, with increases in both chilled (up 47%) and frozen beef (up 42%), generating a total of US$532 million. Mexican beef exports to the US have increased by more than 50% in each of the past two years, largely due to the increased number of plants that meet US required health and safety standards, in addition to the increase in grain-feeding of cattle in Mexico. The high beef prices in the US and the strength of the USD against the Mexican peso have also supported shipments from Mexico.

Meanwhile, Mexican live cattle exports have also been driven by the higher prices paid in US feedlots. In 2011, Mexico exported a record 1.38 million live cattle to the US, up from 1.1 million head sent in 2010. Weekly Mexican cattle exports to the US so far in 2012 have surged 62% on-year, averaging 35,456 head.