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COMMENTARY & ANALYSIS

November 21, 2017
 
Beef is back in demand, but can supply keep up?
 
For the first time in decades, beef exports are rising faster than the world's population as demand shifts to fast-growing markets in China, Southeast Asia and the Middle East. Consumption would rise even faster if supply-side bottlenecks could be resolved.
 
By Eric J. Brooks
 
An eFeedLink Hot Topic
 
 
Is beef making a comeback? Is beef coming back into fashion? Not exactly, but the world market for this priciest of red meats has not been this interesting for decades.
 
On one hand, in a world with limited arable land and a constantly growing population, beef's unfortunate status as the most feed inefficient, land-hungry protein line puts it at a disadvantage relative to other meats. Based on USDA statistics, this continues to be true: From a 1.1% annual expansion rate in the 1988-98 decade, world beef output rose by only 0.8% from 1998-2008, then slowed down to 0.5% from 2008-18.
 
Per capita beef consumption fell from 9.2kg in 1988 to 8.5kg in 2008 to just under 8kg this year -but the quality and quantity of this consumption is changing. The west is self-sufficient in beef but its consumption has been flat for decades. 
 
On the other hand, led by China, Southeast Asia and the Middle East, the beef consumption of emerging economy nations incapable of raising their own cattle is skyrocketing. As a result, world beef consumption is tracking population growth but the distribution of this consumption is undergoing a profound change: East Asia, Southeast Asia and the Middle East have gone from 6% of world beef consumption in 1988 to an estimated 25% in 2018.
 
Over this same time, the proportion of world beef output consumed by North America, the EU and Australia has sharply. The rise of beef consumption in these emerging economy nations makes the market interesting for several reasons.
 
First, unlike traditional western consumers, they must import most of the beef they eat. Moreover, from the Middle East to China, consumers in emerging economy beef importing nations show a high propensity to eat expensive beef cuts, whereas in mature markets like America, low-value ground beef makes up over half of consumption.
 
This has profoundly boosted beef demand, cattle rearing returns and beef's price, with the most expensive cuts leading the way. Thus, while beef production is rising more slowly than ever, emerging market demand is causing consumption to jump ahead of output. Moreover, the proportion of beef that trades on the world market and fetches the highest price possible is skyrocketing.
 
World beef exports only rose at a meager 0.5% annual rate in the twenty years up to 2007 inclusive. Beef exports then started growing more rapidly, rising 1.4% annually from 2007 through 2012 inclusive. This accelerated to a 3.7% annual increase in beef exports in the five years from 2012 through 2017 inclusive. -By comparison, exports of pork and chicken meat grew by 2.6% and 1.9% respectively over these same five years.
 
Unfortunately, while consumption momentum is carrying over into 2018, beef supplies are too strained to meet demand. With 2017's top two exporters incapable of boosting their output, 2018, exports are climbing 2.7%, to 10.56 million tonnes, from 9.80 million tonnes this year. -They would have climbed even faster, were it not for the supply-side constraints we describe in our articles on Australia and Indian beef cattle.
 
From America to Australia to Brazil, an export-driven rise in beef's fortunes is boosting cattle herd numbers. Unfortunately, as the other articles in this focus report will explain, both today's top beef exporter (India) and the former long-time beef exporting champion (Australia) are unable to take full advantage of emerging market opportunities.
 
This means that going forward, most of the increase in world beef demand will be satisfied by rising US and Brazilian beef exports. While they traditionally account for a third of world beef production, these two nations will contribute over 50% of the USDA estimated 1.18 million tonne, 2% increase in world beef production (to 62.55 million tonnes)
 
America leads the cattle turnaround…
 
Indeed, while it is only the fourth largest exporter (and sometimes a nominal net importer), America's once moribund beef cattle sector is spearheading the export-driven revival of this industry's fortunes. From a sixty-year low of 88.53 million head at the start of 2014, the national cattle herd will have risen a USDA estimated 8.1% five years, to 95.7 million by the start of 2019.
 
Beef cattle are rebounding even more sharply in a shorter time, up 9.6% in just three years from 29.085 million head at the start of 2015 to a projected 31.88 million by the start of 2018.  This is the longest sustained upturn in US beef cattle numbers since the mid 20th century. -It is far steeper than the 6.4% rise in beef cattle inventories that occurred much more slowly over eight years in the 1990s.
 
With world demand increasing strongly, America's beef consumption has also finally turned upwards: domestic consumption jumped by 3.5% in 2016 and 3.8% in this year, the two consecutive years of 3%+ consumption growth in over 30 years. From as low as 23kg at the turn of the decade, Americans will be consuming 26.7kg of beef in 2018.
 
With supply outpacing even this rapid consumption growth, US beef is increasingly export-oriented. At 12.5 million tonnes, 2018's output will finally break the 12.3 million tonne record set in 2000. Based on the expansion momentum of America's cattle herd and the animal's long growth period, output looks set to rise to 12.8 million tonnes by the early 2020s. With supply increasing so rapidly, exports may rise from 10.3% of output this year into the 12% to 13% range by then -possibly enabling America to overtake Australia in total beef export volumes by that time.
 
Instead of rising to an initially projected 1.24 million tonnes, US beef exports will total 1.28 million tonnes in 2017 and may rise as high as 1.4 million tonnes in 2018. Traditionally a net beef importer, export-oriented growth is making US beef exports exceed exports -something that only started happening in our century.
 
…Brazil will be the beef exporting king
 
While America's beef cattle sector achieves self-sufficiency, the greatest beneficiary of rising world beef demand will be Brazil. Despite this year's tainted beef scandal, no other country has the land, feed resources and scope for boosting production and productivity that Brazil does.
 
With domestic consumption rising by only 2%, Brazil's USDA projected 2.6% rise in beef production (from 9.45 million tonnes to 2018's 9.70 million) will translate into a 5.8% increase in exports, to 1.90 million tonnes. This is not Brazilian beef's best performance: It exported over 2 million tonnes of beef 2006 and 2007 before a food safety scandal got it banned from the EU, causing exports to plunge. It will however, enable Brazil to overtake India as the world's largest beef exporter in 2018.
 
Indeed, Brazil looks set to reign as the world's largest beef exporter for a very long time to come, and this only producer capable of supplying over two million tonnes per year to the world market. The rise in Brazilian exports will be accompanied by similar increases in shipments from Uruguay, Paraguay and possibly Canada. The question is whether or not India, Australia and New Zealand can join the party.
 


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