September 11, 2006

 

Volatility clouds global meat trade for 2006
 

 

Vulnerability and volatility shape the forecasts for animal product markets and trade this year, according to a USDA report titled Animal Products Markets in 2005 and Forecast for 2006 released Friday (Sep 8).

 

The outlook for US meat, poultry, and dairy markets in 2006 depends on how well domestic production adjusts to changes in input costs, the exchange rates, disease and trade restrictions, and the increasing competitiveness of emerging exporters, the report said.

 

While animal disease outbreaks had shaken consumer confidence, volatile exchange rates had planted much uncertainty over the market. This year is also a year when the US faces keener competition from other countries such as Australia, Brazil, and Argentina in the market for major meats, the report noted.

 

However, competitor countries face limitations themselves. The USDA cites for example, that feed grain constraints are limiting Australia's production of fed beef and thus its potential in gaining the Japanese beef market.

 

While US beef was barred from the Japanese market because of mad cow disease concerns, Brazil and Argentina's exports to Japan were restricted by foot-and-mouth disease. Argentina's self-imposed export ban also limited its presence in many countries, the report said.

 

The competition for corn supplies posed by the booming of the ethanol industry is also another highlight of 2006.

 

Although more markets are now open to US beef, exports are still far below pre-ban levels, thus creating a glut in the domestic market, the report noted. Exports in 2005 were just over 698 million pounds, and are forecast for another increase of 58 percent in 2006 to just over 1 billion pounds as sales have been strong and trade with Japan has now resumed.

 

However, this is still less than the 2.5 billion pounds exported in 2003 before the beef ban. Mexico and Canada are currently the largest markets for US beef.

 

Market recovery in Japan, which resumed US beef imports in July, may be slow for reasons such as the changing of consumer habits, contractual commitments from the past, especially with Australia, price comparisons between the more expensive US beef and the cheaper Australian beef and consumer confidence in the safety of US beef.

 

In other markets, exchange rate variations can influence beef trade forecasts, USDA said. In 2005, the US dollar depreciated, thus making imports more expensive to US buyers, while exports became cheaper.

 

The October 2005 outbreak of foot-and-mouth disease (FMD) in one of Brazil's largest beef-producing states, Mato Grosso do Sul (MGS) was another significant event affecting the beef trade. The state was responsible for 16 percent of the country's slaughter in 2004. Besides impacting consumer confidence, it also raised concerns over global supplies because of Brazil's status as the world's largest beef and poultry exporter, the report said.

 

Following the FMD announcement, several countries imposed restrictions on imports from the state as well as two of its neighbouring states.

 

Brazil's restriction created trade opportunities for competitors, such as Australia and Uruguay, the report noted.

 

While US beef exports were restrained, pork seems to have developed at its expense.

 

For 2005, pork exports hit a record 2.7 billion pounds, up 22 percent from 2004. Exports were especially strong to South Korea, Canada, and Russia. Pork exports are forecast to expand even further in 2006, by about 13 percent to just over 3.0 billion pounds.

 

Record US pork exports went to Japan and South Korea, two of the countries that had banned imports of US beef, thus solidifying conclusions that US pork had become a substitute for beef and poultry.

 

However, this increase may last only until the resumption of significant US beef exports to Japan and South Korea. Still, eating habits favouring pork may have developed over the previous years, which would make it difficult for beef to reclaim its place, thus making any forecast very uncertain.

 

Overall, US pork exports for 2006 are expected to rise 13 percent.

 

US broiler meat exports are forecast to increase just over 5 percent in 2006.

 

Broiler exports in 2005 totaled 5.2 billion pounds, up nearly 9 percent from 2004.

 

However, shipments were much weaker than expected in the last quarter of the year as exports fell short of 2004 levels by 14 percent.

 

December shipments to Russia, the Baltic States, and Eastern Europe were down sharply because of bird flu concerns. Increased consumption is expected as consumers become more informed about bird flu.

 

Meanwhile, low prices should also encourage consumers to buy more chicken. Thus, broiler exports through the first half 2006 are expected to exceed those of a year ago and expand even further in the last half of the year.

 

Pork appears to be a temporary beneficiary of the uncertainty and thus expanded pork trade is expected.