October 22, 2018
The world beef trade takes a breather
After a decade when beef export growth exceeded that of chicken or pork, supply side constraints are limiting expansion. Demand remains strong as rising US, Brazilian output rises offsets faltering Indian and Australian production.
By Eric J. Brooks
An eFeedLink Hot Topic
World beef production isn't going up by much. Its production is not even keeping pace with the world's population -but the proportion of beef that is internationally traded is rising rapidly.
On one hand, from 53.0 million tonnes in 2000, world beef production will have risen by 20% to a USDA estimated 63.6 million tonnes in 2019. It's 1% annual increase lags world population growth of 1.1%. On the other hand, these same nineteen years saw world beef exports jump by nearly 80%, from 5.94 million tonnes in 2000 to a USDA estimated 10.58 million tonnes in 2019. As a result the proportion of world beef production that is internationally traded increased from 11% in 2000 to 17% next year.
Even so, the world beef trade is taking a breather this year: After growing an average of 3.9% annually (and much faster than chicken or pork exports) from 8.085 million tonnes in 2010 to 10.56 million tonnes in 2018, 2019 will see flat export volumes, rising an immaterial 0.2%, to 10.58 million tonnes.
This is not due to world beef demand: Despite competition from bloated US pork supplies that have been blocked from entering China, beef prices have held up better than expected, staying at relatively stable at relatively high price levels.
Rather, 2018's poor export growth reflects the topping out of cattle herd growth in some countries and drought's impact on others. After a year of wet weather enabled a one-year herd recovery and 7% expansion in 2018 beef production (to 2.3 million tonnes), Australia appears to have slipped back into longterm drought. With the number cattle put on feed unable to make up for overall herd losses, its 2019 beef production is falling 5.2%, to 2.18 million tonnes and far from its 2014 peak of 2.6 million tonnes.
That in turn is causing the former top beef exporter's shipments to fall from 2018's 1.63 million tonnes to a third ranked USDA estimated 1.51 million tonnes in 2019, significantly below its 1.85 million tonne record peak achieved in 2014-15.
India temporarily supplanted Australia as the world's top beef exporter but finds its own output constrained by a variety of legal and institutional circumstances. Due to religious restrictions, all Indian beef comes from dairy cattle. Their number has remained constant near 300 million head for over a decade. Partly due a levelling out of male cattle eligible for slaughter, partly due to new restrictions and penalties on slaughter in an increasing number of states, the years since 2016 have seen Indian beef production level out near 4.3 million tonnes.
With India's own domestic beef consumption rising, the amount available for export is falling. Exports peaked at 2.08 million tonnes in 2014 then stabilized slightly 1.8 million tonnes for several years but slipped 10%, to 1.665 million tonnes in 2018. Shipments are projected to fall another 2.4% in 2019, to a USDA estimated 1.625 million tonnes.
The gradual loss of Indian and Australian beef supplies has been offset by an ongoing 2.96 million tonne rise in Brazilian, Argentinian and US beef production from 2015 through the end of 2019. Over 1.9 million tonnes of this increase is due to rising American production, where a resumption of pastureland friendly rains and a spell of record high cattle prices produced a historic, secular rebound in US cattle numbers.
With cattle prices falling from their peaks and dry conditions returning to America's southern plains, cattle inventories are forecast to top out and close 2019 at 95.2 million tonnes, 7.5% above their 88.5 million secular low in early 2014. Coincident with rising carcass yields and rising finishing weights, beef output is on track to rise 15.1% in four years, from 2015's 11.08 million tonnes to a USDA projected 12.73 million in 2019.
Along with cutting America's own beef imports by 150,000 tonnes, the supply increase is making US beef exports boom by 43% or 440,000 tonne in four years, from 1.028 million tonnes in 2015 to a USDA projected 1.472 million tonnes in 2019. From 2015 through 2019, America will have accounted for 45% of the projected increase in world beef exports.
–At the same time, America's unique beef eating habits force it to be a nominal exporter, with foreign sales offset by an estimated 1.402 million tonnes of imports in 2019. In theory, America raises enough cattle to be self-sufficient in beef. In practice, with up to 60% of US beef consumption accounted for by cheap ground beef, the nation finds itself with a surplus of high quality steaks for export. At the same time, US ground beef consumption is only met by importing it, chiefly from Australia and New Zealand.
Most of the remaining increase in world beef shipments was due to Brazil, the top exporter. It's 2.1 million tonnes of beef exports in 2018 will grow another 4.8% to 2.2 million tonnes in 2019. Even so, partly due to tainted meat scandals, corn feed shortages in the years 2016 and 2017, exports are only 10% higher than in their previous 2015 peak of 1.909 million tonnes. After China imposed a 25% import tax on US soy, its excessive sourcing of Brazilian soybeans is again pushing up feed costs. This however, is expected to be offset by the low value of Brazil's currency over the short term.
The final contributor to world beef supplies is Argentina, where the election of a pro-free market government and subsequent liberalization enabled export volumes to triple, from 186,000 tonnes in 2015 to 500,000 tonnes this year and a USDA projected 575,000 tonnes in 2019. With America's cattle market cycle poised to turn downwards, Brazil and Argentina increasingly look to be drivers of world beef export growth going into the early 2020s.
With world beef trading rising four times faster than output, beef's trade metrics carry a profound implication: Rising exports and imports amid flat output means that world beef consumption is falling sharply in some countries while rising steeply in others. With nations ranging from America to Canada to Australia enduring per capita consumption falls from near 40kg in the 1970s to below 25kg today, the west's turning away from beef is well known. With world beef consumption rising in nations incapable of raising cattle themselves, exports are driven by a small but significant handful of importers.
Chief among these is China, whose beef import volume jumped from 8,000 tonnes in 2008 to a USDA estimated 1.2 million tonnes in 2018, rising 10% to 1.32 million tonnes in 2019. When one subtracts the exports from America's total imports, China has taken over from Japan to become the world's top beef importer, more than making up for the fact Japan imports 200,000 tonnes less beef than it did 20 years ago. It also China's 1.3 million tonnes increase in beef imports accounts for approximately 44% of the 2.96 million tonne increase in world beef exports over the past decade. It did more for the world beef market than South Korea, Southeast Asia and the Middle East, which collectively boosted world beef imports by 606,000 tonnes over the past ten years.
Much of this increase is accounted for by South Korea, which saw its beef imports nearly double, from 295,000 tonnes in 2008 to 560,000 tonnes this year. Led by large markets in Thailand, Indonesia, Malaysia and Philippines, Southeast Asian beef imports increased by 51% over these same ten years, from 322,000 tonnes in 2008 to 487,000 tonnes this year. The Middle East's 35% growth in beef imports (from 543,000 tonnes to 734,000 tonnes) over these ten years was interrupted by two oil price crashes but otherwise would have been much faster.
Going forward, with Australian production falling and US cattle herd numbers topping out, no one believes the past decade's 3%+ growth in world beef exports can be sustained. Even so, a new redefined world beef market is gradually taking hold.
Asia is offsetting falling western beef consumption. There are signs that the long secular decline in the America's beef consumption is over. With Japan's economy recovering from a two decade depression, there are signs of an aggressive revival in this large market's import growth.
Even if western Europe's beef consumption continues to fall, it will be offset by rising Eastern European consumption. But rising consumption in Southeast Asia, Eastern Europe and Middle East are all secondary to China's rising demand. Chinese demand for red meat has deep historical roots, as does eating expensive red meat as a status symbol. These guaranteed drivers of Chinese beef demand must contend with a cattle herd whose size has flattened out due to rising dairy cattle production. All this implies that we can expect China to keep increasing world demand for beef imports by a million tonnes every decade.
Partly due to its trade war with America, partly due to South America's abundant supply of feed inputs, we can expect a large, increasing proportion of China's beef to be sourced from Brazil and Argentina. The latter, along with Paraguay and Uruguay, may figure prominently in China's long term beef supply strategy.
Unless Australia can get out of its drought-induced decline, beef from America has potential to replace it in key markets, with supplies from New Zealand and Canada leveraging newly signed free trade agreements to enhance their market access in Asian nations. The real long-term wild card remains Indian supplies to the Middle East and Southeast Asia, which are increasingly at the whim of a government that puts religious imperatives ahead of beef exports.
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