CME: Decline in Prices Creates Opportunities for World Buyers18 February 2013
US - Decline in wholesale beef values have caused interest globally as US shipments for the first six weeks of 2013 were up 17 per cent on the same period last year, according to Steve Meyer and Len Steiner.
There continues to be ongoing conversation among market participants about the potential impact that an 8.2 per cent cut on USDA’s budget could have on the ability of USDA to properly inspect processing plants.
USDA officials have said that under sequestration they will have no choice but to furlough food safety inspectors, write Steve Meyer and Len Steiner.
With no inspector present, a plant would not be allowed to run. However, in a letter to USDA, AMI pointed out that USDA “has a legal obligation to provide meat inspection even under sequestration,” a position echoed by NCBA. Some are arguing that the potential for a disruption in the food inspection regime and closing of plants is pressuring livestock futures.
With plants closed, they will not be able to purchase livestock and poultry, effectively causing the prices to crash. Even if that were the case, however, the impact would likely be temporary. If the flow of beef, pork and chicken is disrupted, it would also impact the price of meat the retail case, pushing prices higher.
If anything, we think the situation could make for extremely volatile markets, rather than have a sustainable negative price impact. At this point, we continue to believe that current weakness in the market reflects fundamentals, both higher than expected meat supplies and short term demand shocks due to weather and reduced consumer disposable incomes.
The sequester may become an issue as we approach the deadline but at this point we’ll let the politicians play their poker game. Somehow we all end up paying for their hand.
The decline in wholesale beef prices has created opportunities for world buyers and they appear to be taking advantage of the current sale on US beef.
Through the first six weeks of the year, US shipments of fresh/frozen beef were 92,300 MT up 13,167 MT (+17 per cent) from the same period a year ago. One word of caution. Last year, weekly export data was quite volatile for a few weeks.
If we were to correct for the week to week volatility of last year, shipments likely are up about 6 per cent from a year ago. Still, this is a really good start to the year, especially considering that the growth has come despite lower exports to key markets such as Japan and S. Korea.
The chart above outlines the source of growth in exports so far this year. Exports to Mexico have rebounded compared to very limited volumes last year, with total shipments so far this year up 4,878 MT or 31 per cent from last year. Exports to Canada through the first six weeks of the year were also up some 4,237 MT, 44 per cent higher than the same period last year.
One market that showed notable growth in the last quarter of Q4 and continued to perform well in January was Hong Kong. Beef exports to Hong Kong so far are up 4,074 MT or more than double the volume of a year ago.
Beef exports to Japan were steady compared to last year although the expectation is for shipments to increase following the relaxation of rules on cattle age.
So far, the growth in exports has outpaced the increase in beef imports. But again, this is early in the year and this is normal this time of year. Based on US Customs data, imports of fresh/frozen beef through February 11 were up about 1500 MT or 2.7 per cent.
Imports from New Zealand and Mexico have shown the most growth, with import volume from these two countries up about 6,000 MT compared to year ago levels. However, much of this increase has been offset by a sharp decline in beef imports from Canada.
In all, imports of grinding beef are up (more beeffrom Australia/New Zealand) while imports of fed beef are tracking below year ago levels (less Canadian beef).
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