Modest Expansion for Global Beef, Pork and Broiler Meat Trade in 2015

Beef and Veal:

• Global exports are forecast nearly 2 percent higher to a record 9.9 million tons. Gains by leading exporters Brazil and India more than offset declines in the United States and Australia, both hindered by tight supplies and high prices. Asia, particularly China and Hong Kong, accounts for the majority of demand growth.

• U.S. production is forecast to continue to decline, down 2 percent to 10.9 million tons as lower slaughter more than offsets increased weights. Despite robust global demand, tight supplies and higher prices are expected to drive U.S. exports 3 percent lower to 1.1 million tons.

Pork:

• After declining two years, global exports are forecast to rebound and increase 4 percent to 7.2 million tons on strong demand from China. China’s liquidation of breeding sows will slow production growth; its imports are forecast to reach a record 1.0 million tons on rising consumption. A ban on shipments from key suppliers as well as disease-based restrictions will drive Russia’s imports lower despite increased shipments from Brazil.

• U.S. production is forecast to rebound 5 percent to a record 10.9 million tons on increased slaughter and heavier weights. Greater supplies and lower prices will benefit U.S. exports which are forecast to increase 3 percent to 2.4 million tons on Mexican and Asian demand.

Broiler Meat:

• Global exports are forecast to expand 4 percent to a record 10.9 million tons as a result of gains by Brazil, the United States, Turkey, Argentina and Thailand. Imports by Russia are expected to decline as domestic production increases. Brazil and Argentina are poised to capture a greater share of the Russian market as a result of the recent ban on broiler meat shipments from EU, United States, Canada, Australia and Norway.

• U.S. production is forecast to rise 3 percent to a record 17.8 million tons on increased slaughter, heavier weights and greater demand due to broiler meat’s price competiveness visà-vis red meats. Despite the loss of the Russian market, U.S. exports are expected to rise 1 percent to a record 3.3 million tons as shipments are shifted towards Mexico, Sub-Saharan Africa and East Asia.

Competition Fierce for Australian Beef Supplies in 2015

2014 Was a Record Year…

Australia’s drought-induced herd liquidation in recent years pushed slaughter to decade’s high levels and 2014 production is set to achieve a record 2.5 million tons. As a result of increased supplies, exports are expected to grow 11 percent to a record 1.8 million tons enabling Australia to make gains in most of its key markets.

But Australian Beef Exports Set to Decline in 2015...

Australian production is forecast to decline 7 percent in 2015 on tight supplies of slaughter-ready cattle, driving exports 10 percent lower. With robust demand in key importing countries, prices are likely to rise, and the distribution of shipments between markets will change.

China Has Emerged as an Important Market…

Frozen beef (HS 0202), primarily boneless, has accounted for the majority of Australia’s export expansion, comprising threequarters of total beef shipments in 2013.

Three markets had historically accounted for the majority of Australian frozen beef shipments: Japan, the United States and Korea. Combined, these accounted for 65 percent of Australian frozen beef exports in 2011 but dropped to 56 percent in 2013. During the same period, China’s share increased from 2 percent to 16 percent, becoming a strong competitor for frozen beef.

Australian frozen boneless beef exports are primarily comprised of manufacturing-type beef (50 percent) and primal cuts (40 percent). Not surprisingly, certain markets demand particular products. For instance, Japan and the United States compete for non-primal cuts while the Asian markets (China, South Korea and Japan) vie for primal cuts.

But Shipments Expected Lower to All Key Markets in 2015.

While still elevated on a historical basis, the forecasted decline in Australian beef exports in 2015 is significant and will likely result in lower shipments to all key markets – China, Japan, Korea and the United States.

• Japan and Korea are expected to face the greatest decline as they continue to compete with China for supplies of frozen boneless beef primal cuts. Total Chinese beef imports are forecast higher in 2015 and its stronger demand are likely to bid product away from Asian neighbors.

• Australian frozen boneless manufacturing beef shipments will likely decline to both the United States and Japan. Robust U.S. prices on tight domestic supplies and strong demand will continue to generate more lucrative opportunities for Australian beef compared to the Japanese market. Thus the decline in shipments to Japan will be more significant compared to the United States.

Global Pork Trade Forecast to Recover in 2015

Trade Higher on Record China Imports

After declining for two years, global pork exports are forecast to increase 4 percent to 7.2 million tons. Robust demand will largely be driven by China, where imports are forecast to reach a record 1.0 million tons.

EU Exports Rise as Demand in Asia Continues to Offset Loss of Russian Market

EU production is forecast virtually unchanged in 2015 constrained by animal welfare regulations and poor returns in 2014. However, exports are projected to increase 2 percent. Trade has largely been redirected to China and South Korea to help offset the loss of their largest market, Russia.

Russia imposed import restrictions on EU pork in February 2014 when four cases of ASF were reported in Poland and Lithuania. The EU initiated a World Trade Organization (WTO) case in response to the restrictions, stating that the blanket ban on pork from the entire EU is disproportionate and in violation of WTO rules. Since the imposition of ASF restrictions, Russia placed an additional ban on pork from three major suppliers the EU, U.S. and Canada.

Rebounding U.S. Production Bolsters Exports

In 2015, U.S. production is forecast up 5 percent to 10.9 million tons on increased farrowing, a gradual recovery in pigs per litter, and heavier weights bolstered by lower feed costs. Greater supplies and lower prices will benefit U.S. exports which are forecast to increase 3 percent to 2.4 million tons on strong Asian and Mexican demand.

In 2014, production is expected to fall 2 percent below the previous year due to the adverse impact of Porcine Epidemic Diarrhea (PED). PED first appeared in the United States in May 2013, and has since been reported in 31 states, which collectively account for more than 95 percent of production.

PED is particularly lethal to pre-weaned piglets, often resulting in near 100 percent mortality. It is not reportable to World Animal Health Organization and does not affect meat.

South America Increasingly Turns From Brazil to Argentina for Broiler Meat

Growing Argentine Broiler Meat Production…

In 2013, Argentina surpassed Brazil as the primary supplier of broiler meat for South American markets and is expected to continue to grow. Production has more than doubled within a decade as a result of rising domestic and foreign demand along with ample feed supplies. Moreover, heavy investment and an increasingly vertically integrated sector have turned Argentina into the eighth largest producer in the world.

Consumption has almost doubled over the past decade. Argentines are among the largest beef consumers in world; yet, for most of the past decade the competitive price differential vis-àvis beef favored broiler meat.

However, broiler meat consumption appears to have reached its ceiling in 2012 as a result of market saturation and moderating beef prices. This ceiling resulted in greater exportable broiler meat supplies.

Facilitates Surge in Exports…

Argentine exports are booming due to competitive prices and global demand for cheaper sources of protein. Over two-thirds of Argentine exports are comprised of whole birds. Processors are now beginning to shift their marketing efforts toward broiler parts and further processed valueadded products. Despite its relatively new presence in the market, Argentina has emerged as the world’s seventh largest exporter. This robust export sector supports industry growth and healthy producer margins in the face of inflation-driven elevated production costs, especially energy and labor.

Taking Market Share from Brazil in South America

Brazil, the world’s largest exporter, dominated the South American market until it shifted from Venezuela towards the Middle East. Argentina filled the void and surpassed Brazil in 2013.

Two-thirds of Argentine exports remain in South America. Venezuela, the region’s largest importer, represents nearly half of Argentina’s shipments, followed by Chile and Peru. The remainder is shipped to over 70 countries, including markets in Sub-Saharan Africa and East Asia.

New Opportunities on the Horizon

Russia is seeking alternative broiler meat suppliers due to its recent ban on certain agricultural imports from EU, United States, Canada, Australia and Norway. Imports by Russia are expected to decline as domestic production increases. Prior to the ban, the United States and EU supplied over three-quarters of Russia’s broiler meat imports. Argentina and Brazil are poised to partially fill the gap in the market.

Additionally, rising broiler meat consumption in South American markets and new demand from Sub-Saharan Africa and Middle East will likely bolster future growth.

Growing Broiler Meat Exporters Challenge Traditional Suppliers Particularly in The Middle East

Over the past five years, growing broiler meat exporters - Argentina, China, Thailand, Turkey and Ukraine – challenged the dominance of traditional suppliers - Brazil, EU and United States. Moreover, growing exporters represent almost half of the 2 million ton rise in global trade over this period. The inroads are largely occurring in the Middle East.

The Middle East, particularly Saudi Arabia, Iraq and UAE, accounts for over 25 percent of world broiler meat imports and is fueling global consumption. Rising incomes, economic growth, and changes in tastes and preferences support this growth.

Changing Preferences in the Middle East

Middle East consumers generally prefer fresh/chilled whole birds, in compliance with halal standards. However, along with the expanding hotel, catering, and restaurant sectors, there is a growing preference for ready-to-cook products and parts/cuts by younger households.

Over the past decade, growing exporters have nearly doubled their market share and almost tripled their exports. These gains are attributable to significant and unique competitive advantages.

For example, Turkey’s geographic proximity to key Middle East markets lowers costs and facilitates shipping logistics. In 2006, Turkey had no market presence in Iraq. Today, after having captured market share from the United States and Brazil, it now supplies over 30 percent of Iraq’s broiler meat, primarily supplying halal whole birds.

While import demand in East Asia and other maturing markets such as the EU remains steady, the future of these exporters will lie in the new and developing markets