US - There is broad expectation among market participants and analysts that US beef imports will be lower in 2016, write Steve Meyer and Len Steiner.
There are three factors that drive this expectation.
First, Australian beef shipments to the US were particularly large in the last two years and the pace of shipments is seen as unsustainable going forward.
The Australian cattle herd in 2013 and 2014 reached the highest level since the late 1970s, at 29.3 million head. Current forecasts are for the herd to be around 26 million head by the summer of 2016, a 3MM head decline (-11 per cent) in just three years.
The US benefited from the Australian herd liquidation (drought/ currency devaluation/export demand). With the Australian herd at the lowest level since the mid 1990s, slaughter there will necessarily decline and this COULD reduce Australian beef shipments to the US.
In the last two years, Australian beef accounted for about 37 per cent of overall US beef imports. But it is important to keep in mind that a lower slaughter does not necessarily imply a similar reduction in shipments to the US.
The Australian beef industry is well diversified. Shipments to the US are a function of beef availability in Australia but they also reflect the effect of exchange rates (especially in Asia) as well as overall global beef demand.
The risk of a global recession may still be relatively low. Still, a full blown financial crisis in Asia could have a dramatic impact on Australian beef shipments and the deep US market serves as a market of last resort for Australian packers.
The second factor that drives the expectation for lower imports in 2016 is that lower prices in the US have made it a less attractive market than what it was in 2014 and 2015.
Mexico and Canada accounted for about 30 per cent of US beef imports in 2014 and 2015. The expectation is that supplies from these two countries will be steady to lower in 2016 largely because herd rebuilding activity will tend to limit overall slaughter.
But as is the case with Australia, the key assumption here is that demand from other markets will be sustained in 2016. Should conditions in Asian markets deteriorate, the tendency will be to maintain or even increase shipments to the US.
Finally, there is the potential for increased imports from Brazil and Argentina. US beef imports from Brazil in 2015 accounted for about 4 per cent of overall imports.
This was all cooked beef as fresh/frozen beef still is not allowed to enter the US. Our opinion is that this will change in the next three months, as Brazilian plants are approved to ship beef to the US.
But also do not believe this is reflected in the USDA forecast, as it is standard practice for USDA not to adjust forecasts until terms of trade have materially changed.
How much could the outlook for US beef imports change when Brazil starts shipping beef to the US? We propose that the impact could be quite significant, especially if it is accompanied by further deterioration in global financial markets.
Quota limits could be a limiting factor for Brazilian shipments to the US. At this point Brazil has access to around 64,000 MT of quota that is available to all countries that do not have a special allocation.
But we see this as a speedbump rather than a stumbling block since it is conceivable Brazilian packers may chose to pay the additional 26.5 per cent tariff, especially if US lean grinding beef prices remain near current levels and the Real stays weak.
Current USDA forecasts are for US per capita beef consumption to increase by just 0.4 pounds (+0.7 per cent) in 2016. This assumes that imports will decline by 1.2 pounds per person (16 per cent). There are a number of factors that could help support US beef imports in 2016 and, if that happens, this could impact per capita availability and ultimately beef prices in the US market.
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