February 24, 2011

Ukraine seeks to export three-million-tonne meat

If Ukraine stops exporting 15 million or more tonnes of grain, it will have the opportunity to export three million tonnes of meat products.

If the grain was fed to poultry with a feed conversion of 1.5 kilogrammes of feed for each kilogramme of poultry then there would be an additional 10 million tonnes of poultry product to deal with.

That would be a lot of chicken, but even if we don't increase poultry output and instead feed hogs and cattle we would see at least an additional 3.5 million tonnes of animal meat in Ukraine. That would be more than enough to cover current Ukrainian imports of 200,000 tonnes of meat. If Russia only imported from Ukraine that would still leave, after substituting imported meat, Ukraine looking for a market for 2.9 million tonnes of meat.

Based on current information total global meat trade, poultry, beef and pork is just under 23 million tonnes. If Ukraine keeps restricting grain exports to support lower domestic bread prices and to ensure cheap animal feed the logical outcome would be that trade able meat supply in the global market would increase by 10%. That would cause dramatic fall in global meat prices. The meat trade is far more difficult than the grain trade.

Looking at the financial results of the Australian Agricultural Company (AAco), a 187-year-old company, and Australia's biggest beef group, in the last year it reported earnings of AUD900,000 (US$904,275) for 2010, after two years of losses totalling more than AUD90 million (US$90.43 million). To make money the company had to initiate a turnaround programme.

The improved result follows a broad-ranging shake-up at the beef giant, which has involved raising cattle fertility, curtailing animal movements to stem rising fuel costs, and laser and satellite analysis of pasture to optimise feeding patterns and improve weight gains.

Growth of 13%, to 577,000 head, in the AAco herd has seen it focus on younger breeding stock, and on "higher value" animals whose meat is in particular demand. The group expanded its herd of wagyu cattle, whose marbled beef is prized in Japan, by 30% to 41,000 head.

The company has also grown exports of live cattle, by 22% last year, to meet strong Asian demand, a business it "expects to further grow" in 2011. AAco is not alone in barely being able to make money in the meat business.

For example Smithfield Foods, the US global pork producer, processor and trader, made money in its last quarter of 2010, after 13 successive quarters where it lost money. Tysons, the US global poultry giant, lost US$547 million in its fiscal 2009 when feed prices were low, and then made money in 2010 when feed prices rose. That it's hard to make money in the meat business doesn't mean that it doesn't happen-consider Avangard, MHP, JBS and Pilgrim's Pride.

Although two of the companies are Ukrainian and one is from Brazil and the last from the US, all of them made money over the last three years, between the twin peaks of feed price highs.