After a bright 2011, U.S. beef exports might wane

Foreign markets can display acute price sensitivity that could constrain demand

2011 was a banner year for U.S meat exporters, with beef, pork and poultry exports all hitting record levels on the back of dietary adjustments and increased affluence in overseas markets.

But beef shipments petered out notably towards the end of the year just as beef prices stretched to record heights, suggesting that foreign markets can display acute price sensitivity that could constrain U.S. meat export potential in 2012 if prices continue to push higher.

Back on the menu

It took a while, but U.S. beef exports finally recovered from the steep collapse in overseas demand seen after the 2003 outbreak of BSE, or bovine spongiform encephalopathy, and scored an all-time high in 2011 of close to 2.8 billion pounds.

Improving diets across the developing world have created a growing market for all cuts of meat in recent years, with U.S. pork exports climbing by 95 per cent since 2005, and U.S. poultry exports increasing by more than 30 per cent over the same period.

But it is the 300 per cent jump in U.S. beef exports since 2005 that has been the most noteworthy as the U.S. cattle industry recovered from the devastation wrought by the BSE outbreak and subsequent plummet in demand for U.S. beef both at home and abroad.

The fact that U.S. cattle producers also had to contend with a 200 per cent climb in corn — the industry’s top feed ingredient — since 2005 has made the export story all the more heartening for cattle ranchers, and the export arena is being heralded as a key growth market over the coming years.

But while global demand for U.S. beef will indeed likely continue to increase going forward, U.S. producers and shippers of the meat need to be mindful of how the prevailing high price of beef has the potential to erode demand in a significant way.

Wholesale versus retail

Due to the high cost of key feed inputs such as corn, an uncertain economic outlook, and an historic drought across key U.S cattle pastureland throughout 2011, U.S cattle producers have worked to keep beef production in check lately by reducing overall herd sizes. This tight hold on supply served to push cattle prices to record high levels at the start of 2012, and has made cattle one of the top performing arenas in the agricultural sector in recent months.

However, the high cost of cattle has also translated into record-high beef prices, at the wholesale level as well as at the grocery store.

At the retail level, the average price of a pound of beef topped $5 for the first time at the end of 2011, and has continued to press higher in the opening weeks of 2012. This compares with roughly $3.50 for a pound of pork and around $1.80 per pound of broiler chicken (all figures US$).

This widening spread between cuts of beef and alternative meats such as pork or chicken has served to promote substitution away from beef among U.S. shoppers in recent months, and looks set to keep beef on only a limited number of shopping lists for the near to medium term.

But for the export market, the wholesale price is the more important factor to consider, and for the time being wholesale price levels seem to be struggling to gain as much upside traction as at the retail level.

Further, at

just under $3 a pound for beef, $1.50-ish for pork and roughly 75 cents for poultry, U.S. wholesale meat prices do not pose the same kind of sticker shock to potential buyers as retail prices.

Nonetheless, wholesale beef prices recently pushed to their highest levels ever, and clearly had a negative impact on overseas demand over the final months of 2011.

In contrast, U.S. wholesale pork values declined towards the tail end of last year, which coincided with a strong uptick in export interest for the year’s final quarter.

Poultry steady

U.S. wholesale poultry prices remained largely steady for the latter half of last year, which promoted a fairly strong showing on the export ledger for the year as a whole.

This diverging trend between rising wholesale beef prices and steady or weakening pork and poultry wholesale prices could well set the stage for a more pronounced cutback in U.S. beef exports and greater interest in U.S. pork and poultry going forward. Should this occur, the drop-off in beef exports seen towards the end of 2011 could persist deep into 2012, and render 2011’s strong beef export performance an exception instead of the rule.

But if beef costs come down over the coming months on the back of production increases and lower input costs, U.S. meat exporters could well build on 2011’s strength and capitalize on the world’s growing taste for American beef.

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