The Latest on U.S. Red Meat Exports

Posted on 03/09/2017 10:21 AM

USDA published the June 2016 U.S. trade results last week, so a look at U.S. red meat exports for the first half of the year seems warranted. The numbers show the U.S. remains a net beef importer, whereas it enjoys a major pork export surplus. The first chart below offers an historical perspective of monthly beef export fluctuations. I've included data back to 2003 in order to remind readers of the strong sales levels reached prior to the December 2003 finding of a 'mad cow' and the devastating impact that event had upon the U.S. cattle industry. It essentially took the U.S. eight years to recover from that blow, with total exports in mid-2011 finally topping the previous peak.

beef1_aug182016"The national totals in the bottom portion of the chart show Mexico was a true friend to the U.S. in the wake of the mad cow news, with Japan and South Korea, as well as most other countries, taking several years to boost their buying back toward previous levels. More recently Japan has resumed its position as the number one importer of U.S. beef, with Mexico, South Korea and Canada (not shown) representing major markets as well.

Unfortunately, the chart also makes clear the downtrend in sales from 2011 through 2015. The reason for the drop is not at all mysterious. General U.S. dollar firmness in the wake of the 'Great Recession' played a part in the drop, but the main cause was the cyclical reduction of the U.S. cattle population and beef production. That almost surely squeezed many buyers out of the market. The situation probably wouldn't have been all that tight if not for the droughts of 2011 and 2012, since the resulting lack of grass and water forced many producers to liquidate herds.

Conversely, the current expansion is reinvigorating export demand. Slaughter cattle and beef production have clearly increased this year. The resulting price declines have also encouraged buying both domestically and internationally.


This chart above puts this year's totals in a short-term perspective, illustrating the strong seasonal increase during the March-May period. The strong uptrend and especially the May surge, had to encourage those in the cattle and beef industry, Conversely, the June decline was poor, since it not only fell back to the mid-2015 level, it diverged from the market's recent history of climbing all the way through July. It's entirely possible that the low prices experienced in recent weeks caused a July surge, thereby helping establish a summer price bottom and setting the stage for a seasonal rally. On the other hand, the chart indicates August-December exports tend to look mediocre when compared to the strong first-half uptrend.

U.S. pork exports trended steadily higher for decades, with a major inflection point occurring in 1995 when we became a net pork exporter. The following chart puts the more recent results in perspective, showing the sales totals of the past few years have generally run below the highs reached in 2011. One of the most obvious inferences from these data is the impact surges in Chinese pork purchases have had upon the national export total. Cyclical Chinese pork shortages in 2008 and 2011 caused them to emerge, at least temporarily as major buyers. The 2008 buying binge was likely exaggerated by the country's gathering of supplies for the 2008 Olympic games in Beijing. Their 2011 buying was even stronger despite the lack of a specific associated event. It's no coincidence that those two increases came at the same time U.S. pork exports climbed to record highs.

pork1_aug182016Many in the industry, including me, thought we might see a similar summer 2016 surge, which largely explains the exaggerated late-spring rally in cash hog and futures prices. The June export decline, as well as the persistent price weakness experienced since that time, strongly suggest Chinese importers have at least temporarily curbed their buying. The stunning early-summer ham price rally reportedly reflected vigorous demand from both Mexico and China, but the subsequent breakdown implies a big reduction in those purchases. I would also point out the big cutbacks seen during 2014, when the PEDv outbreak drastically reduced U.S. hog and pork supplies and sent prices soaring. The market is still recovering from that situation.

pork2_aug182016Actually, the production and price shifts experienced over the past 30 months help explain the big April 2015 surge and the drop seen this year. That is, production was accelerating rapidly in early 2015 in the wake of the extreme 2014 tightness. Unfortunately, retail prices remained extremely high at the time, thereby causing an exaggerated price breakdown in late winter and early spring. Those depressed prices almost surely inspired a major demand response from export buyers. Prices weren't especially strong in April 2016, but certainly marked an improvement over their year-ago counterparts. The May export recovery looks very encouraging in this context, while the June reduction looks quite seasonal in nature.

Both the year-ago totals and the 10-year average indicate pork exports routinely decline during summer, although, as mentioned above, the ham price strength suggested surprisingly vigorous export purchases at that time. The slowdown almost surely reflects the usual summer tightening of U.S. pork supplies, as well as the resulting price strength. Late 2016 exports should also reflect shifting price levels. If the domestic industry is truly swamped with hogs, conditions could prove very conducive to export sales. That might help mitigate the anticipated seasonal price decline.



Add new comment