November 18, 2008

Weekly FAS export sales reports show declines in US beef exports, likely affected by a strengthening of the dollar, declining global demand for more expensive cuts of grain-fed beef and obstacles in financing due to tightening credit markets.

The reports have shown generally lower weekly export figures for the month of October, particularly to Mexico, Japan, and South Korea. The decline in outstanding sales to Mexico, the largest importer of US beef, accelerated in September and continued through October, signifying that orders are slowing.

Shipments of US beef began re-entering South Korea in mid-July and grew quickly to make South Korea the third largest export market for US beef in the 3rd quarter, behind Mexico and Canada.

However, most major Korean retail stores are not selling US beef just yet, limiting retail sales. With Korean cold storage facilities filled to near capacity, future exports of US beef will depend on higher volumes of retail sales and how fast the US beef can regain its market share. This could be difficult in the faceoff a downturn in the Korean economy due to the worldwide deterioration in credit conditions.

Beef exports in the third quarter were 609 million pounds, which was 43 percent higher year-over-year. However, the outlook for the 4th quarter does not support growth continuing at such a high rate.

Exports for 2008 are expected to be 1.841 billion pounds, a 28-percent increase from last year. Next year, exports are expected to increase only 4 percent, to 1.92 billion pounds, as demand for Mexico and other smaller, emerging markets are expected to decline.

US imports of beef in the third quarter fell 24 percent year-over-year, totalling 584 million pounds. US imports of beef from Australia, which have generally been the largest supply of foreign beef to US markets, have fallen 32 percent through the third quarter.

Drought-induced herd liquidation over the past few years have subsided as Australian ranchers attempt to rebuild their herds. The Australian winter saw ample precipitation in the northeastern areas, while the southeastern region was a bit dryer.

The beginning of the Australian spring season has been much dryer. If fragile pastures do not receive sufficient rain, attempts to expand herds will be much more difficult. If the herd rebuilding efforts take hold in Australia, Australian exports to the US could continue their short-term decline.

Conversely, if producers were forced to liquidate, the increased slaughter could result in a short-term increase in beef exports to the US. In 2008, imports are expected to decrease 20 percent to 2.443 billion pounds. Next year, 2.595 billion pounds of beef are expected to be imported into the US. This would be first time since 2004 that imports have increased.