December 10, 2013

US-Mexico cattle, beef trade changes may continue further

Over many years, the US and Mexico cattle and beef trade has evolved to increasingly complex and integrated levels.

The comparative advantages of the two countries were reflected in these trade flows such as cow-calf production in Mexico and feedlot finishing and processing in the US. US beef supplemented growing Mexican beef demand with export flows of products that were complimentary to US beef production and demand. At the same time, Mexican cattle supplemented US feeder cattle supplies.

More recently, the adoption of boxed beef technology, combined with expanded feedlot production in Mexico, increased value opportunities for Mexican beef, including expanded beef export opportunities. Like US beef exports to Mexico, imports of Mexican beef into the US represent specific products, mostly middle meat cuts, which compliment beef production and demand in Mexico.

Mexico has emerged as the number four source of beef imports in the US since 2009. After increasing for many months, Mexican beef exports to the US have decreased five of the last six months and were down 8.4%, over year, in the latest monthly data for October. As result of the recent decreases, year to date US imports of Mexican beef are up only 7.4% through October. This compares to average increases of 53% each of the past four years.

US beef exports to Mexico have dropped significantly since 2008, however US exports of beef to Mexico began to increase in June and have increased 46%, over year, for the five months between June and October. October beef exports to Mexico increased 72% compared to the same month last year. Year-to-date exports of US beef to Mexico through October are up 5.5%. If exports finish the year above 2012 levels, it would be the first annual increase in US beef exports to Mexico since 2008.

Due to drought in 2011 and 2012, Mexican feeder cattle exports increased significantly, though exports dropped sharply in the last part of 2012. October imports of Mexican cattle were up 8% from the relatively low October, 2012 level leading to the first monthly increase, over year, since August of 2012. For the year to date in 2013, US imports of Mexican cattle are down 40%. Imports of Mexican cattle are on pace to total roughly 940,000 head for the year, down half a million head from the 2012 total and the smallest total since 2009 or earlier.

A decline in Mexican exports of beef and cattle, combined with increased Mexican beef imports implies that Mexico is experiencing either increased beef demand, decreased beef supply or a combination of both. It appears most likely that beef production has dropped in Mexico and that limited supply is the major factor modifying these trade flows. Wholesale beef values and slaughter cattle prices in Mexico are at record or near record levels. The general situation in Mexico appears to be similar to that of the US: cattle herds have been liquidated due to drought and other factors leading to an extended period of restricted production and the need for herd rebuilding. The recent changes in cattle and beef trade flows are likely to persist for some time.