It’s hardly controversial to say that describing and forecasting international trade trends is a challenge. Nothing happens in a vacuum, and macroeconomic environments are finicky and complex. When it comes to meat, it’s especially complicated. The trade isn’t just meat for meat; it involves multiple commodities across multiple countries.
The year that was
Looking back, economists note that export tonnage was down slightly for the United States, but the bright spot this year was larger-than-anticipated exports to Japan, says Jim Robb, director of the Livestock Marketing Information Center. Now those export numbers are decreasing, because that market is highly seasonal and it has already peaked. “But the trend here has been to sequentially raise export expectations, driven by the situation in Japan,” Robb says. It helped that Japan changed its BSE-era rules this year and moved to the worldwide standard, accepting beef from animals under 30 months of age.
The global market also has been strong for exports of U.S. byproducts, he adds. “Hide values are very strong, in part because the handbag, shoe and car markets have picked up in the last several years. It’s an important category and one that can gain strength.”
Meanwhile, the United States’ two main beef-exporting competitors, Brazil and Australia, both showed very strong growth this year, says Erin Borror, an economist for the U.S. Meat Export Federation. “There’s been a serious drought in Australia, and that’s driven a major increase in their liquidation and slaughter. This has been somewhat offset by an increase in exports, luckily for their producers, since they’re a completely export-dependent country.”
Much of that extra production went to China, Borror says, which is the main growth market. “When we combine China and Hong Kong, it’s the largest and fastest-growing beef market in the world. They’ve had strong, uninterrupted growth for the last several years, unlike anywhere else in the world, and this year we saw them surge. Imports into that region have basically doubled when we look at the first seven months of the year.” Unfortunately, U.S. beef still doesn’t have access to China and hasn’t since December 2003.
Nevertheless, U.S. beef exports are expected to reach $5.8 billion this year, Borror says. “That would be a new record in value, supported by strong growth in Japan, Hong Kong and Taiwan.”
Meanwhile, beef coming into the United States is down slightly this year: less from Australia and Canada, but more from New Zealand, Mexico and Uruguay, Borror says.
Those import numbers — primarily lean beef for hamburger production and other supply chains — may soon be trending upward. “There’s probably going to be more of that the next two or three years because our domestic supply of cull cow and related beef supplies that largely go into hamburger continue to dwindle, and we’re going to find that meat somewhere,” says Glynn Tonsor, associate professor at Kansas State University. “I actually anticipate growth in both imports and exports over the next couple of years.”
Seeing the future
Another thing economists anticipate: high prices. As U.S. supplies of beef continue to contract in 2014 and 2015, the result will be record-high retail prices in the United States and a return to record-high wholesale prices, Robb says. That creates an export challenge. “Foreign consumers look at these price points. They like beef, but when you’re at record-high prices, it’s harder and harder to sell.”
High prices will go hand-in-hand with tight supplies in the United States and around the world. “There are relatively steady supplies in South America, but as far as major exporters and our ability to supply this growing demand in China, for example, it gets to be a question of, ‘Where is the beef going to come from next year?’” Borror says. Beef supplies can’t turn around overnight. “That’s in contrast to poultry and pork, where we could see larger production next year with low feed prices, so you’re going to see an even wider gap in higher beef prices versus poultry and pork,” she says. “That will be a challenge not just here in the United States but possibly around the world.” Nevertheless, Robb predicts strong export markets ahead. “Japan will probably remain the growing bright spot, even if the tonnage goes down. In 2014, the total value of beef exports, plus byproducts, could set a new record high, because the price goes up though the tonnage goes down.” One question mark he sees on the horizon concerns Canada and Mexico — two of our largest beef markets — thanks to country-of-origin labeling and the uncertainty around potential retaliation.
Tonsor shares the optimism about exports. “Most people still project global economic growth — maybe not rapid growth, but growth — and for that growth to occur in areas where consumer income, and therefore protein consumption, is expected to continue to grow, and things like beef are expected to be on the plate.” Most analysts anticipate that South Korea will continue to be a growth market and possibly Russia, too. Tonsor argues that Japan will be less important to the United States going forward because it’s an older society and birth rates are low. “Over time, it will be less of a target market,” he says.
But other opportunities — big ones — exist. “The areas that don’t get talked about as much, but 10 to 30 years out are probably a bigger deal, are North Africa and the Middle East.” Ten years out, the USDA projects more than 70 percent growth in the amount of beef they will import, a result of large population growth combined with some income growth. “We don’t talk about that like we do South Korea, Russia and Japan, mainly because today it’s not a major area, but going forward it will be more and more important,” Tonsor says.
What producers can do
The U.S. beef industry (or anyone who hopes to sell into those markets) will have to understand that the typical consumer in, say, North Africa, South Korea and Iowa will not have the same preferences in how their beef is produced and processed, he adds. “I think everybody recognizes that at face value, but I don’t think they appreciate the scope of it,” Tonsor says. “We tend to treat consumers as homogeneous, and that’s incredibly misleading. All supply chains, including here in the United States, will have to get more sophisticated and be willing to change for different target consumers.”
One thing producers can do now: Be willing to adjust and to participate in programs that document or verify claims. “Age and source is always the example used, and I’m not talking explicitly about that,” Tonsor says. “I think being part of that still keeps doors open, but more broadly, just being willing to do something like that, to let a third party verify that what you say you’re doing is what you’re doing — I think that is the best thing you can do. If you’re not willing, you’re not helping open up these doors. Some segment of producers will be, and that segment will be leading the growth charge. Packers and retailers will align with them.”
Realize that the rewards might not materialize immediately, however. “If you adjust your business to be willing to document, you may not get the premium next week,” Tonsor says. “But I do think you’ve put yourself in a better position to be a desired supplier.”
Borror adds another piece of advice for U.S. producers: Continue to produce the high-quality beef they’re known for. “What I see when I travel overseas is that people in our industry are already at a disadvantage because we are a higher-cost producer compared to most other exporters in the world,” she says. “We need to do everything we can to make sure we have superior quality, because that’s what we’re marketing — not just here in the United States but around the world.”