Spotlight on Economics: Challenges and Opportunities in the World Beef Market

International beef trade issues continue to be dynamic and are impacting cattle prices short and long term. The U.S. is a major producer of beef, pork, chicken and turkey in the world and also a major exporter of those commodities. The U.S. also is a major importer of beef.

International trade is increasing in importance to the U.S. beef sector. As new trade issues surface, cattle and beef prices, as well as the competing meats’ prices, can be volatile.

An increasing number of issues, some controversial, seem to be surrounding the global beef market. Some provide challenges for beef exporting and importing countries but also may provide opportunities for countries such as the U.S.

The U.S. is the largest exporter of high-quality beef in the world and the leading exporter of beef on a value basis. The U.S. Department of Agriculture (USDA) has projected that the top four beef volume exporting countries in 2017 in order of importance will be India, Brazil, Australia and the U.S.

Also predicted is that the China/Hong Kong beef market will overtake the U.S. as the world’s leading beef importer. Important issues with each of these other countries could impact the U.S. cattle market.

India’s ranking as the world’s leading beef volume exporter is somewhat controversial in itself. “Beef” that is exported is mainly meat from water buffaloes, because cows are considered sacred to many people of Hindu faith. Nevertheless, meat from water buffaloes, also referred to as carabeef, is in direct competition with lower-quality, grass-fed beef from other countries such as Brazil and Australia.

Some packing plants in India are operated by Muslims, who have had issues with the Hindu-dominated federal government. In May, the Indian government imposed a ban on the sale of cattle and buffaloes at livestock markets for animals to be slaughtered.

In July, India’s Supreme Court suspended the ban. Because buffalo meat exports are a lucrative market for India, many expected the ban to be lifted. But the potential prospects for a ban, at least temporarily, caused uncertainty and volatility in the world beef market.

Brazil, the second-leading beef volume exporter, has had its share of turmoil recently as well. A meat inspection bribery scandal involved several meat companies and temporarily reduced beef exports in early 2017.

JBS, with headquarters in Brazil and the world’s largest meat company, has been rocked by a political bribery scandal and may be divesting some assets.

One asset for sale is Five Rivers Cattle Feeding, a wholly owned subsidiary of JBS and the largest cattle feeding entity in the world, with headquarters in Greeley, Colo. Five Rivers owns feedlots in Colorado, Kansas, Oklahoma, Texas, Arizona and Idaho. JBS already announced the pending sale of its 75,000-head feedlot in Alberta, Canada.

In late 2016, bilateral fresh and frozen beef trading between the U.S. and Brazil was approved by both countries. Relatively small amounts of lower-quality beef were imported into the U.S. from Brazil, and some high-quality beef has been shipped from the U.S. to Brazil.

JBS was a major player in these transactions. On June 22, the USDA announced that fresh and frozen beef imports from Brazil were suspended due to food safety concerns. China, a leading beef customer for Brazil, also announced that it was scrutinizing beef from Brazil more closely.

Australia, the third largest beef volume exporter, experienced a severe drought in a major cattle-producing region in 2014 and 2015. Forced herd reduction resulted in increased beef production and exports. A return to more normal rainfall allowed herd rebuilding to begin in 2016 and the lower beef production reduced exports. Interestingly, during the first four months in 2017, the U.S. surpassed Australia to temporarily become the third largest volume beef exporter.

Australia was the largest supplier of beef to the U.S. but has fallen to third place in 2017 behind Canada and New Zealand. Beef imports from Australia were off 39 percent in 2016 from the inflated levels of 2015, and that slower pace is continuing in 2017. The lower production and high beef prices also are causing a lower volume of exports to other countries.

The export market is becoming more and more important for cattle prices in the U.S. After a difficult beef export year in 2015, due to several factors, beef exports were up more than 12.5 percent in 2016 and are forecast by the USDA to be up another 9 percent in 2017. Exports were up about 15 percent the first half of 2017. That was one reason for the cattle price rally into May 2017.

U.S. exports were especially strong to the four major customers: Japan, Mexico, Canada and South Korea. Noteworthy is that the U.S. is in trade negotiations with Japan because the U.S. withdrew from the Trans-Pacific Partnership.

In early July, the European Union and Japan signed an Economic Partner Agreement, which gives favorable access for European beef to Japan. The U.S. also is discussing provisions of the North American Free Trade Agreement with Canada and Mexico. Maintaining the robust beef trade with those top beef customers is important for the U.S.

The major hurdle to resuming U.S. beef exports to China was the political negotiating process. Now that an agreement is in place and beef is allowed to be exported, the size of the Chinese market will need to be determined by the marketplace.

The requirements that beef must be traceable to the birth farm using a unique identifier and not contain growth promotants, feed additives and other chemical compounds may restrict the amount of beef that is initially available for export to China. Longer term price premiums may provide the incentive for beef producers to raise cattle that meet those requirements.

Several of the issues discussed above have at least temporarily impacted cattle prices and particularly the futures market. At times, a “buy the rumor, sell the fact” mentality has caused price volatility that may have been frustrating for cattle producers. With the instant access to worldwide information that is so readily available, expect price volatility to continue as the dynamics of the global beef market continue to evolve.