Tight supplies and record high prices for lean grinding beef in the US have supported a notable increase in US beef imports so far this year. Beef imports from Australia (based on Customs data through Oct 22) are up some 52,000 MT or +45% compared to the comparable period a year ago. Based on the pace of Australian shipments so far, we expect entries of Australian beef to remain well above year ago levels for the next two months as well. Our estimate is for Australian October exports to the US (which is beef that arrives here 3-4 weeks later) to be around 18,000 MT, some 47% higher than a year ago. The high price of lean grinding beef in the US is one reason for the surge in Australian shipments to the US. Also important to note is that beef supplies in Australia have improved somewhat compared to last year when producers were in full blown rebuilding mode, thanks to plenty of forage supplies in the spring (southern hemisphere). Demand for Australian beef in some key markets has also declined this year. Shipments to Japan have slowed down considerably. They were down 5% in August, down 20% in September and they could be down 20% again in October. Australian exports to South Korea are down some 21% for the year as well while shipments to the Russian market since this click image to zoom summer are about half of what they were last year. With Brazilian plants once again allowed to ship product to Russia, and thanks to the depreciation of the Brazilian Real vs. the Russian Ruble, Brazil has once again become the primary beef supplier to the Russian market. Trade flows are fickle, a function of changes in exchange rates, government policy (overt or implied), and overall competitiveness of markets around the world. The latter is key as US supplies of lean grinding beef are expected to remain tight into the next two years. The US market should become much more competitive in 2013. It will have to be in order to fill the supply hole created by the cow liquidation of the past three years. The surge in Australian beef shipments has helped ameliorate the situation although it as not fixed the lean beef shortage sitaution. Indeed, what it has done is return the dynamic in the grinding beef market to where it was a few years ago, with domestic lean beef trading at a healthy premium. This is largely due to the fact that most large retailers do not include frozen imported beef in their ground beef packages. This is not for any patriotic reason, rather it reflects the extra effort required to manage this supply, the labeling requirements, the changes needed to internal specs and yield issues. Foodservice demand for imported beef has been volatile this year. End users remain loath to own plenty of invntory given the high price levels and the risk of a price reversal due to outside market factors (currency, global commodities, etc).
While imports of Australian beef have been strong this year, imports from Canada have declined sharply. Canada domestic beef supplies are notably lower, with steer and heifer slaughter down 5% for the year and cow slaughter down a little over 12%. A couple of other interesting points with regard to the import data. The latest USDA WASDE report noted that US beef imports are expected to be up 15% for the year. That may be a bit optimistic as we are up just 9.6% with only two months left. Next year USDA has pegged imports to be up 11% and we think that number clearly is achievable given the expected premiums for lean beef implied by cattle futures. New Zealand and Australia should remain strong in 2013 but we could see a slowdown in imports from Mexico. In part this is because the volumes have become large enough that the current growth rate is not sustainable given their supply base. Canada imports will be steady to lower and growth in imports from other markets will be limited due to the quota constraints. Cooked beef imports are a wild card, largely dependent on trade policy decisions.