While world beef output is only rising 2%, from 62.55 million tonnes in 2017 to 63.03 million tonnes in 2018, several years of increases are clearly in the pipeline. Closing world cattle inventories increased by 6.86 million head, 6.50 and 6.49 million head in 2016, 2017 and 2018 respectively.

 

This is the first time world cattle inventories have increased by 5 million head or more for three consecutive years in many decades. Given cattle's slow, multi-year growth cycle, it promises consistent, sustained beef production growth into the 2020s.

 

Even so, 2018's beef supply increase is concentrated in exporting countries such as Australia (+6.1%), the United States (+5.6%), Brazil (+4.7%) and Argentina (+3.0%), which supply over half of the world market. As a result, world beef exports are rising 5.1%, from 2017's 9.969 million tonnes to a USDA projected 10.474 million tonnes this year. This will finally break the 9.995 million tonne export record set in 2014.

 

Having caused the stagnation in production and exports earlier in the decade, America and Australia are now leading the beef sector's revival. A steep, drought-induced decline in US and Australian cattle numbers could not be fully counterbalanced by supply growth in India and Brazil. This kept world beef production on an undulating plateau of 58 to 60 million tonnes from 2007 through 2016.

 

US cattle numbers have recovered from a sixty year low of 89.1 million in 2015 head to 94.4 million at the start of this year and 94.5 million by the end of this year. While overall US cattle numbers will have recovered by 6.1% from their 2015 bottom to their opening 2019 level, beef cattle have risen a faster 9.1% and have not yet leveled out. From 29.085 million head in 2015, they will have increased to 10% to an estimated 32 million head by the start of 2019.

 

This increase in US cattle numbers would have been even higher had drought not returned to beef pastureland areas last year. Even so, should these dry conditions persist into the upcoming growing season, they could push US beef output higher than has been projected over the short term later this year and early next year.

 

Due to cattle's multi-year maturation time, the sharp rise in US inventories that occurred from 2015 through 2017 only started making its way to the world beef market last year. By comparison, Australian cattle numbers kept falling, from 29.2 million head at the start of 2013 to 24.97 at the start of 2017. Coinciding with a flattening out of Indian cattle herds and the country's own beef exports, Australia's production decline counterbalanced post-2015 increases in US beef production.

 

Thanks to improved pastureland conditions, Australia is enjoying a sharp rebound in cattle numbers. They rose to 25.5 million at the start of this year and are expected to enter 2019 at 26.5 million head, a 6.1% increase over two years after bottoming out at 24.97 million head in 2016.

 

Whereas US beef production increases are close to their market cycle peak, Australia still has one to two years of large production increases ahead of it. Going forward, with Indian beef production constrained by a flat herd size and legislative barriers to cattle slaughter, the end of this decade will see most beef production and export increases from the market's traditional main three suppliers; the United States, Australia and Brazil.

 

Over the longer term, there is no doubt who will account for a majority of the world beef supply increase after 2020: While their carcass yield is only over half that of their American or Australian counterparts, Brazil has been increasing its total cattle herd by approximately six million every year, or by more than the United States did in four years.

 

After slack domestic demand and poor returns kept them stagnant between 52 and 53 million head for several years, Brazilian cattle numbers increased by an average of 800,000 head since 2015 and will exceed 58.2 million by the end of this year. That is a 5.5 million head or 10.4% increase from 52.9 million head six years earlier.

 

Brazilian beef is dogged by longterm marketing problems ranging from being banned due to unsanitary beef plant conditions in the late 2000s to early 2010s ban from Russia for the same reason to last year's exposure of tainted meat being approved for export by corrupt inspectors. Except for Argentina, no other country has the feed input supply or production capacity elasticity to meet long-term Asian demand than Brazil.

 

The latter however, needs to rebuild its once world-leading beef cattle production infrastructure from scratch. Hence, Argentina could only rise from its 350,000-tonne export level to achieve its former 700,000-tonne export volume no earlier than the earlier 2020s.

 

Hence, while Indian supply growth is giving way to that of America and Australia, the early 2020s will see Brazil account for a lion's share of world beef supply increases. For as the accompanying chart clearly shows that for most years since 2000, Brazil has increased its cattle herd size by more than all other top beef exporters combined.

 

Thus, after fluctuating between 1.8 and 1.9 million tonnes of exports for most years since 2008, last year saw Brazil (1.856 million tonnes) overtake India (1.849 million tonnes) as the leading exporter. After rising to 2.025 million tonnes this year, Brazil is likely to finally break its peak 2007 export volume of 2.189 million tonnes no later than 2020 -if it can avoid any further beef safety and quality scandals. Going forward, we see a shrinkage of Indian (18.1%), Canadian (4.6%) and New Zealand (5.3%) market share while America (13.1%), Australia (15.4%) and most especially Brazil (19.3%) increase their world market dominance.

 

While beef's export profile is changing, so too are its consumption and import characteristics. Japan, which in 2000 imported 1.045 million tonnes of beef accounted for 18% of world imports, now only buys 832,000 tonnes and amounts to 10% of world market purchases. America went from importing 215,000 tonnes more beef than it exported in 2000 to exporting 179,000 more tonnes than it will import this year -while supplying the world market with a third-ranked 1.372 million tonnes. But while America is maintaining its world market position as a top beef exporter, its influence as a beef importer has been waning.

 

The real post-2000 market change has been the rise of beef buyers in China, Southeast Asia and the Middle East North Africa (MENA). From 469,000 tonnes in 1998 and 819,000 tonnes in 2008, MENA nations such as Saudi Arabia, UAE, Kuwait and Egypt will import a collective 1.15 million tonnes of beef this year, approximately 676,000 tonnes more than they did in 2000 -and throughout this time, Japanese, US and EU beef import volumes have either stagnated or declined.

A similar story is unfolding in both Southeast Asia and South Korea. ASEAN beef imports more than doubled from 240,000 in 2000 to an estimated 505,000 tonnes this year, while those of South Korea went from 303,000 to 555,000 tonnes over these same 18 years. -But while the collective 1.7 million tonnes of world beef demand created by South Korea, ASEAN and MENA is impressive, one country's appetite for beef is growing even more quickly and in half the time.

 

Since accelerating at the turn of the decade, China's beef demand growth is decelerating but continues to exceed expectations. Total 2017 beef consumption was a USDA estimated 8.227 million tonnes. That was an 8.8% increase over 2016's 7.759 million tonnes and more than the 8.0 million tonnes initially projected.

 

For 2018, the USDA's initial 8.14 million tonnes of 2018 consumption projected last October was revised to 8.4 million tonnes earlier this year. Then in April, it was revised upwards again to 8.53 million tonnes, 4.8% more than in 2017. With beef output only rising by 0.9% (to 7.325 million tonnes). As a result, projected 2018 beef imports have been revised upwards from the previous 1.05 million tonnes to 1.20 million. This is 23% more than the 0.974 million tonnes imported in 2016.

 

At this point, one thing is for certain: As it did with commodities as diverse as soybeans and fishmeal, China will soon become the world beef market's price setting, top importer. From almost zero ten years ago, it overtook Japan as the number two importer in 2016, when it imported 812,000 tonnes of beef versus 719,000 by Japan.

 

Going forward, even if Chinese beef import volumes expand by less than a third of their 30%+ annual rate they have expanded at since 2014, by no later than 2020, China will have overtaken the United States as the world's biggest beef importer.

 

By the early 2020s, expect China to be importing 1.5 million tonnes of beef compared to a million tonnes by both America and Japan. As is already the case in commodities like soybeans, the world market for beef will be increasingly dominated by Brazilian supplies and Chinese demand.