Mexican beef market impacts on the U.S. beef industry

The Mexican beef cattle industry has been severely impacted by the drought the past two years, much as the U.S. has been impacted.  Additionally, changes in Mexican domestic beef consumption and beef trade have significant implications for the interaction of the Mexican and U.S. cattle and beef industries in the coming years.

Mexico emerged as a major customer for U.S. beef in 1997, replacing Canada as the second place export destination behind Japan.  Mexico remained the number two market until 2004 when it became the number one export market for U.S beef following the first BSE case in the U.S.  Mexico remained the top beef export market until 2011 when it dropped to number two behind Canada.  In 2012, Mexico dropped again to third place behind Canada and Japan.  Beef exports to Mexico have declined every year since 2008, with 2012 levels less than half of the peak exports in 2008.  More disturbingly, beef exports to Mexico have declined while pork and poultry exports have continued to expand.  U.S. pork exports to Mexico have increased 77 percent since 2008, while poultry exports have increased 31 percent over the same period.  U.S. beef dropped from 36 percent of total meat exports to Mexico prior to 2009 to less than 13 percent of total meat exports to Mexico in 2012.

The decrease in U.S. beef exports to Mexico seems to be part of a bigger issue of stagnant or declining beef consumption in Mexico.  While general economic conditions, including a struggling economy, no doubt contribute to weak beef demand, the issues seem to be more specific to the beef market with sharply higher beef prices and changing relative values for specific beef products contributing to changes in Mexican beef demand.  The role of U.S. beef in the Mexican market and the potential for beef exports to Mexico may well have changed compared to the past 15 years.

Simultaneously, Mexico continues to grow as a beef exporter.  This has been facilitated by rapid expansion of boxed beef processing with the Mexican beef market relying less on carcass trade.   In 2012, Mexico exported nearly 250 thousand metric tons of beef, with over 40 percent of that to the U.S.  Though data is limited, it appears that Mexico is exporting between 10 and 15 percent of total domestic beef production. U.S. imports of Mexican beef have grown sharply the past four years and Mexico has been the fourth largest source of beef imports since 2010, following Canada, Australia and New Zealand.  Mexican beef exports to the U.S. consist primarily of middle meat cuts which have higher value for export compared to the domestic Mexican market.  The combination of reduced domestic supplies due to exports and the change in proportions of middle and end meats in the Mexican market appears to have contributed to a relatively larger increase in end meat values in Mexico.  This may be a significant part of the price impacts which are limiting beef consumption in Mexico.  As beef values in the U.S. and Mexico continue to approach an economic balance, the impetus for beef exports to the U.S. may moderate resulting in slower expansion of Mexican beef into the U.S. market.

The combination of high U.S. cattle prices and drought in Mexico has contributed to increased U.S. imports of Mexican feeder cattle the past two years.  In fact, U.S. imports of Mexican cattle have increased each year since a low in 2008 but only in 2011 and 2012 did the levels reach the second and third highest levels since the peak level in 1995.  These recent export levels are not sustainable and appear to have contributed to both reduced domestic beef consumption in Mexico and herd reductions that will limit beef production and cattle exports in the coming years. 

In 2011, the 16 percent year over year increase in Mexican cattle imports included a 12 percent increase in steer imports and a 48 percent increase in heifer imports.  In 2012, steer imports declined 11 percent while heifer imports increased 84 percent, with heifers accounting for 26 percent of total Mexican cattle imports.  On average, heifers have accounted for less than 10 percent of U.S. imports of Mexican cattle. Since 2010, an extra 400,000 head of Mexican heifers above average have been imported.   Mexican cattle imports declined in the second half of 2012 and are down 34 percent so far in 2013.  For the year to date, heifer imports are down 37 percent while steer imports are down 33 percent compared to last year. So far this year, heifers represent 22 percent of total Mexican cattle imports, a rate that likely suggests continued liquidation in the Mexican cow herd.  The current rate of cattle imports implies an annual total less than one million head and additional decreases are possible as cattle numbers continue to tighten.

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