U.S. beef, veal production to drop 5% to 11.4 million tons in 2012, but total world output to remain unchanged as India, Brazil, Argentina offset decline, USDA says; world exports to rise 5% to 8.2 million tons on increased demand in Southeast Asia
November 2, 2011
– World Production Stable as U.S. Decline Offset by India, Brazil and Argentina
Total world production is virtually unchanged despite another year of anticipated tight global supplies with strong demand. The expected significant decline in U.S. production will be largely offset by gains for India, Brazil and Argentina, while the EU and China will remain relatively stagnant.
U.S. Production to Plummet
Production by the world’s leader, the United States, is forecast to tumble 5 percent to 11.4 million tons. Supplies of cattle available for slaughter will be significantly tighter due to lower inventories and recent years’ declining calf crops. Additionally, cattle imports are expected to drop, placing further downward pressure on cattle supplies. Elevated feed prices and drought in the Southwest will keep carcass weights relatively stable, preventing any partial offset from lower cattle slaughter.
India Surges on Dairy and Export Demand
As the world’s largest dairy consumer, India’s bovine herd continues to be fueled by domestic dairy demand. Increasing cattle and buffalo inventories have facilitated lower costs and rising dairy production, while strong profits have paved the way for improved management practices. The expansion of the dairy industry generates additional bovine meat production as an increasing herd raises the pool of animals available for slaughter.
In addition to the impetus of dairy, strong global demand for price-competitive bovine meat generates new incentives for slaughter facilities to salvage previously under-utilized animals. Robust foreign demand drives forecast production 7 percent higher to 3.3 million tons. Marginally higher domestic consumption reflects only population growth, given the Indian preference for vegetarian and dairy-based protein sources.
Brazilian Production Higher on Domestic Demand
Government financing support for herd rebuilding as well as genetic and pasture improvements are forecast to generate an increase in Brazil’s cattle inventories, boosting slaughter-ready supplies. Some processors have even reached partnerships with ranchers to increase feedlot production, enabling them to have pools of finished cattle available throughout the year so as to avoid shortfalls during the dry season when pastures are insufficient, largely in the center-west. These factors, combined with slightly higher carcass weights are expected propel production 2 percent higher to 9.2 million tons. Although elevated prices have somewhat stifled exports, a rising middle class with more purchasing power is driving strong domestic demand.
Other Major Producers Forecast to Make Gains Largely on Herd Rebuilding
Argentina’s beef production is forecast to recover slightly, up 4 percent to 2.5 million tons. Increased slaughter is expected as profitable returns due to continued elevated cattle prices. Improved conditions encourage investment and retention. Producers benefit from hearty domestic and global demand.
Herd rebuilding in Australia has commenced in response to greatly improved pasture conditions and fodder supply compared to recent years. Increased slaughter will outweigh a slight reduction in carcass weights, generating a boost in production of 2 percent to 2.2 million tons which is destined largely for export.
After years of contraction, the Canada’s cattle industry may be entering a phase of herd rebuilding. Increased inventories and a rise in the calf crop partnered with lower live exports to the United States will increase the availability of cattle for domestic slaughter. Canada will continue to maintain its recently acquired feed cost advantage vis-à-vis the United States, although at a narrower margin. With ample feed quality wheat and barley supplies, live cattle exports will be depressed as animals remain in Canada for feeding and slaughter. Production is forecast 4 percent higher to 1.2 million tons.
Unlike the swine sector, Korea’s cattle industry was largely spared from the widespread culling due to the foot and mouth disease (FMD) outbreak of the last year. Sizeable inventories born in 2010, when producers were expanding, are now in the pipeline ready for slaughter. Record inventories will exert downward pressure on prices, prompting slaughter of younger animals. Production is forecast 13 percent higher to 295,000 tons.
Paraguay’s Expansion Stymied by September FMD Outbreak
With the drop in prices, Paraguay’s ranchers are expected to retain slaughter ready cattle as long as possible, waiting for price recovery on the reestablishment of exports. In the wake of the FMD outbreak, nearly all export plants were shut down but smaller local slaughter plants continued normal operations. Paraguay’s production will rise slightly to 440,000 tons, remaining below the level of recent years.
Trade: Shipments Higher to Emerging Markets; India to Capture Significant Gains
Rising global demand, particularly from emerging markets in Southeast Asia, the Middle East and North Africa, are forecast to raise world exports 5 percent to 8.2 million tons. Shipments to developed markets, except the United States, will be largely stagnant.
United States to Lead Increase in Imports
Declining U.S. production will push imports 4 percent higher to 948,000 tons albeit remaining below historical levels. Additional growth is limited by a sluggish U.S. economic recovery, a weak dollar, tight Oceania supplies and strong demand from competing importers.
Middle East and North Africa Expansion to Continue
Demand will be robust across the region with imports by all reporting countries forecast to rise.
The strongest growth is expected from Egypt as meat consumption rises. Imports are forecast 9 percent higher at 250,000 tons. Domestic supplies will be unable to fulfill
demand despite greater imports of slaughter cattle. Profitability in the dairy sector, the driver of the cattle industry, will encourage the retention of animals.
Iran is forecast 4 percent higher to 235,000 tons as consumption remains robust. Iranian investment in Brazilian slaughterhouses assures continued strong bilateral trade.
Imports by Saudi Arabia, Algeria, Israel, Jordan, Kuwait and the United Arab Emirates are all forecast 4 to 9 percent higher on rising populations and incomes as production is limited.
South East Asian Emerging Markets Lead Asian Growth
Vietnam and Malaysia will generate opportunities for increased imports, 8 and 11 percent, respectively, on robust demand, economic growth, a growing middle class, and rising disposable incomes.
Similarly, the Philippines and Singapore are expected to see increases in imports, 3 and 11 percent respectively.
Among traditional developed Asian markets, only Hong Kong and South Korea are forecast to increase, gaining 8 and 2 percent, respectively.
Japan is forecast unchanged at 725,000 tons as relatively flat consumption will be met by stable domestic production and the return to normal distribution since the 2011 Miyagi earthquake.
EU and Russia Forecast Minor Increases
The slight increase in EU imports to 375,000 tons will be limited by elevated South American prices, traceability restrictions on Brazilian supplies, exchange rates, and weak demand.
Russia’s imports are forecast 1 percent higher at 1.06 million tons as increased imports partially offset lower production. Cattle inventories continue to shrink as the dairy industry restructures and a smaller pool is available for slaughter, limiting production. The tariff rate quota (TRQ) volume remains unchanged in 2012 and a significant amount is expected again to be imported over quota. However, imports remain volatile due to sanitary barriers. Russia restricted imports from certain Brazilian beef facilities in June 2011 and while significant in number, the restriction was not as crippling on supply as the impact on pork. Nonetheless, alternative suppliers are expected to benefit from the continued restrictions. Russia and Belarus have yet to establish plans for 2012, but the agreement is expected to closely resemble the current agreement (which allows Belarus to export 130,000 tons to Russia) with the strong potential to increase bilateral trade in order to maintain stable supply. However, since border controls were removed in July 2011, trade may likely be more difficult to regulate and tabulate.
Note: The Russia beef and veal PSDs now include trade with Belarus.
India Solidifies Its Position as a Price-Competitive Supplier
India’s exports are forecast 16 percent higher to 1.28 million tons. Rapid expansion will continue due to the competitive position as a low-cost supplier of bovine (buffalo) meat. Other factors positively impact its marketability, particularly in North Africa and the Middle East. Meat is slaughtered following halal standards and the lean character of buffalo meat has several positive blending characteristics sought by processors.
Ample supplies and relatively weak domestic demand result in increased production being exported despite limited market access compared to other leading suppliers. India maintains important classifications with the OIE (World Organization for Animal Health): “negligible risk” for bovine spongiform encephalopathy (BSE) and “free” for rinderpest and contagious bovine pleuropneumonia. However its FMD status poses issues with gaining additional market access. Although the disease is controlled though vaccination programs, India does not maintain an FMD status classification with the OIE.
Australian and Brazilian Grow, But Constrained
Australia’s exports will rise modestly to near record levels (1.38 million tons) on greater supplies. However, a relatively strong Australian dollar, robust domestic demand and falling carcass weights constrain additional expansion. Appreciation of the Australian dollar in 2011 has diminished shipments to the United States and somewhat rendered Australia less competitive in other markets such as Japan, thus pushing more shipments to non-traditional markets such as Russia.
The rebound in Brazil’s exports is based on greater production and recovery of major markets Russia, the Middle East and Hong Kong. There is little expectation that shipments to the EU will recover as economic concerns constrain demand and supplies which meet the EU traceability program are limited. Recovery of shipments to the United States is also anticipated due to resolution of the Ivermectin residue. Brazilian exports are forecast 4 percent higher at 1.38 million tons.
U.S. Exports Remain Constant Despite Tight Supplies
Despite significantly reduced production, the United States is forecast to maintain exports which will reach 1.25 million tons, a historic 11 percent share of production. Continued strong demand by major markets Canada, Mexico and Asia will buoy shipments.
Canada’s and Argentina’s Exports Higher on Production Growth
Canada’s exports are forecast to increase 8 percent to 450,000 tons on additional supplies and strong global demand.
Although Argentina’s is constrained by government restrictions and domestic beef prices, increased production should bolster exports which are forecast to reach 300,000 tons. Consequently, the industry has focused on shipping higher value cuts to premium markets such as the EU (under and above of the Hilton Quota) as well as Russia and Israel.