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Exports Drive The Market

Prime Cuts

anadian producers know how valuable exports are to their beef industry. Most, if not all, U. S. producers share the same view. To those doubters, just look at the difference between this year and last. Just as reduced U. S. export tonnage and revenues in 2009 depressed wholesale beef and live cattle prices, significantly larger exports this year are doing the opposite. In fact, exports of both cuts and variety meats have been a key market driver for several months and will remain so the rest of the year.

That’s extremely important to U. S. cattle prices because domestic beef demand remains weak in the face of continued high unemployment and a sluggish economy. Demand was down 1.7 per cent in the second quarter from the same quarter last year, says analyst Andrew Gottschalk ofHedgersEdge.com. But exports were up 21.7 per cent in the quarter versus last year. So overall demand in the quarter was up 8.3 per cent, he says.

Export data the first seven months of the year present an impressive improvement on 2009. Total volume at 588,000 tonnes was up 15 per cent and total value was up 25 per cent at more than $2.9 billion. That’s where the big demand improvement shows up, more tonnage and even more sales dollars.

Another way to gauge exports’ value is that in the first seven months, they represented nearly nine per cent of total weekly beef sales. That’s well above the five-year average of five per cent and even higher than 2003 pre-BSE levels. It’s safe to assume that 2010 total exports could maintain that nine per cent. USDA in early September forecast 2010 exports to be up 17 per cent on 2009. But analysts regard this as too low, as exports seasonally tend to increase through year-end.

Exports to Asia are likely to continue to increase, according to exporters. Exports to Japan are up 25 per cent in volume and value. South Korea is buying a lot more U. S. beef and is close behind Japan, the U. S.’s third-biggest

U. S. beef demand was down 1.7 per cent in the second quarter from the same quarter last year, but exports were up 21.7 per cent, so overall demand was up 8.3 per cent

export market after Mexico and Canada. Korea in the first seven months took 63,189 tonnes worth $291 million, up 122 and 162 per cent respectively on 2009. These numbers will continue to grow because Koreans love beef and their economy is the strongest in Asia. It’s no wonder that Koreans are buying more and more U. S. chucks and short ribs.

Conversely, beef imports into the U. S. are down from last year (by 12 per cent in the first seven months). That’s because Australia’s imports have slumped, largely because of the strength of its dollar against the greenback. Its imports from July 2009 to June 2010 fell 25 per cent to 210,514 mt from the year before and were the smallest shipments to the U. S. since 1996-97. From January to June this year, shipments were down 40 per cent. They picked up in July but then began declining again on a year-on-year basis. Australian imports for calendar 2010 are expected to be in the low 200,000 mt and might be smaller than imports from New Zealand.

All this has a big impact on total available beef supplies in the U. S. Beef production year to date is down 0.4 per cent. With exports up and imports down, total supplies are tighter than expected. Second quarter supplies were down 3.8 per cent from the previous year. They might be down year-on-year even more in the third and fourth quarters. USDA forecasts that disappearance will be 59 pounds per person this year, versus 61.1 pounds in 2009, and 57.8 pounds in 2011. This decline means wholesale beef prices will trend higher, raising prices for live cattle and feeder cattle higher as well. Who knows how high prices might go if export demand gets even stronger?

Cattle Buyers Weekly covers the North American meat and livestock industry. For subscription information, contact Steve Kay at P. O. Box 2533, Petaluma, CA 94953, or at 707-765-1725, or go towww.cattlebuyersweekly.com.

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ANorth American viewofthe meatindustry. SteveKayis publisherand editorof

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A North American view of the meat industry. Steve Kay is publisher and editor of Cattle Buyers Weekly.

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