Understanding the effects of global beef trade on the U.S. beef industry

Tuesday, July 25, 2017

There is an old and very true adage about beef trade: What goes on over there has an effect on what goes on over here.

“There is a growing recognition that international beef trade will play an increasingly important role in the U.S. beef industry in the coming years, but within the dynamics of global beef trade it is important to understand changes and trends in U.S. beef trade,” said Derrell Peel, Oklahoma State University Cooperative extension livestock marketing specialist.

The quantity of U.S. beef imports and exports has varied considerably over time and so has the shares of trade among major countries that trade beef with the United States. Some changes are related to specific events, such as the occurrence of Bovine Spongiform Encephalopathy or BSE in 2003, political changes or the effects of currency exchange rates.

However, Peel explains, some changes are just evolution of markets over time caused by changes in production or demand in the United States and other countries.

The latest monthly trade data shows total beef imports in May were down 1.7 percent. For the year to date, January through May, total beef imports are down 9 percent year over year. This follows a 10.5 year-over-year decrease in U.S. beef imports in 2016.

“Australia, historically the top source of U.S. beef imports, is currently the third largest source, down 24 percent in May and down 34 percent year over year thus far in 2017,” Peel said. “Australia has accounted for about 29 percent of U.S. beef imports over the past decade but only represents about 21 percent so far this year. Australia will likely rebuild some market share in the coming years with herd rebuilding following its drought-forced herd liquidation in 2014 and 2015.”

Imports of beef from New Zealand were down 14.5 percent year over year in May and are down 19.6 percent – totaling about 22 percent of beef imports – thus far in 2017. New Zealand has consistently averaged about 20 percent of U.S. beef imports over the past decade.

Given the year-over-year decline in imports from Australia and New Zealand, Canada is currently the largest source of U.S. beef imports. May beef imports from Canada were up 3.4 percent year over year but year-to-date imports from Canada are down 3.6 percent from last year. Canada accounts for about 23 percent of beef imports in 2017.

“Canada has varied as the number one, two or three source of U.S. beef imports during the last 10 years,” Peel said. “Still, Canada’s share of U.S. beef imports appears to have trended down over time with the current share considerably lower than the 27 percent average over the past decade.”

The clearest and most pronounced trend in U.S. beef imports in the growing role of Mexico as a source of beef imports. In May, beef imports from Mexico were up 27.4 percent year over year and are up 29.7 percent for the year to date.

“Mexico, which accounted for less than 2 percent of beef imports a decade ago, accounted for more than 16 percent of U.S. beef imports in 2016 and represents 20 percent of beef imports so far in 2017,” Peel said.

Imports of beef from Brazil in May have increased 50.3 percent year over year and are up 34.2 percent for the year to date. However, the reinstated ban on fresh beef from Brazil in June may slow imports once again, at least temporarily. Brazil has been a distant fifth-place source of U.S. beef imports over the past decade, averaging about 5 percent of the U.S beef import total. Brazil accounted for 5.1 percent of beef imports in 2016 and 5.3 percent so far in 2017.

The U.S. beef export picture

It is a straightforward truth: U.S. beef exports have varied in the quantity of exports and the mix of countries receiving U.S. beef over many years. The latest trade data for May shows total beef exports up 6.8 percent compared to one year ago with January through May total beef exports up 17.1 percent for the year to date.

“May beef exports were down to Canada, Mexico and South Korea while exports were strongly higher year over year to Japan and Hong Kong,” Peel said.

Year-to-date beef exports are up year over year to all major U.S. beef export destinations. This follows annual growth of 12.6 percent in total beef exports in 2016, which included increased year-over-year exports to Japan, South Korea and Mexico along with Taiwan and Vietnam. Exports to Canada and Hong Kong decreased year over year in 2016.

“Continued growth in beef exports to Japan has helped the country to once again be the largest U.S. beef export market since 2013,” Peel said. “Prior to the first U.S. case of BSE in 2003, Japan routinely represented a third to nearly half of total U.S. beef exports.”

2016 beef exports to Japan were 29 percent less than the 2003 total. Peel said total U.S. beef exports recovered and surpassed the 2003 export total in 2011 because of the increasing role of other markets post-BSE along with regrowth in Japan.

South Korea is currently the second-largest U.S. beef export market, a position it held prior to the BSE problems in 2003. Like Japan, South Korea was largely out of the U.S. market post-BSE and recovered second-place status only as recently as 2016. South Korea has shown robust growth the past couple of years and was the only major beef export market to increase in 2015, during the record high U.S. prices.

“Mexico was the only major market to remain largely open after BSE and as a result has had the largest average beef export share over the past decade,” Peel said. “However, beef exports to Mexico have generally decreased after peaking in 2008.”

Data indicates Mexico’s share of beef exports is less than 15 percent thus far in 2017 but total exports are still up 6.8 percent year over year following a nearly 9 percent annual increase in 2016.

“Part of the reason is beef trade with Mexico has become much more integrated and product specific in recent years with growth in beef imports from Mexico,” Peel said.

Canada is currently the fourth-largest beef export market with a 2017 year-to-date share of nearly 12 percent. Canada’s share of total U.S. beef exports has generally declined in recent years though, like Mexico, Canada has had a larger share in the post-BSE world. Beef exports to Canada in 2016 exceeded the level prior to BSE in 2003.

The biggest change in U.S. beef export markets in recent years has been the emergence of Hong Kong as a major player. Hong Kong has a current year-to-date market share nearly equal to Canada. Still, total exports to Hong Kong declined the past two years after peaking in 2014.

Peel suggests expected growth in beef exports to China may be partially offset by decreased exports to Hong Kong as the territory is a known point of transshipment of beef into China.

“U.S. beef exports have become somewhat more diverse over time with additional markets and more balance across those markets,” Peel said. “At times in recent years, Taiwan and Vietnam have had larger shares of beef exports. The impact of this growing list of markets not only affects the total quantity of exports but the types and values of products exported.”

In general, Asian markets for U.S. beef have increased in relative share and importance while the North American markets have declined slightly. China adds potential for the role of Asian markets to increase even more in coming years.