Mexico. Livestock and Products Annual. Aug 2013 Nov. 7, 2013
Cattle inventories continue falling but new programs and a focus on improving genetics and management practices may help the industry rebound. Red meat prices remain the driving factor affecting consumption which has led to reduced beef and an upswing in pork demand. Mexico’s industry and the government are looking to expand their own exports while the United States was able to export over $1 billion in pork and $725 million in beef to Mexico in 2012 with growth expected in 2013 and 2014.
Animal Numbers, Cattle Meat, Beef and Veal
The Post 2014 Mexican beef production forecast is 1.795 million metric tons (MMT) carcass weight equivalent (CWE), slightly greater than the 2013 estimate of 1.775 MMT, as feeding practices and genetic improvements are slowly aiding weight gains and carcass yields. Mexican industry members are looking for animals with better feed conversion to place into northern Mexico’s intensive production systems as a means to lower overall feeding costs. To this end, newer genetics from Angus, Limousin, Simmental, and Charolois and their crossbreeding F1’s are being introduced into the arid and semi-arid regions around Jalisco, Sinaloa, and Nayarit. Currently, these breeds along with Hereford are dominant in the region. The presence of Indobrasil, Brahman, Guzerat, Gyr and other rustic (i.e., native and climate adapted) breeds are pervasive in central and southern Mexico.
Post’s 2013 production estimate is lowered from the 2013 USDA official estimate as consumers’ willingness to pay for beef given higher production costs is limiting expansion. Post’s 2012 production estimates were revised marginally upward based on new official information from SENASICA which is in charge of Mexico’s federally inspected (i.e., TIF) beef slaughter facilities.
Will Calf Suppliers Program Help Overcome Low Cattle Inventories?
The 2012 drought and attractive beef prices enticed producers to sell not only steers and heifers but breeding cattle, as well. Also, Mexico’s low breeding rate, currently averaging 1 calf every 2 years, along with increased calf exports has strained production systems and reduced domestic slaughter from traditional levels for the remainder of 2013 and, likely, the beginning of 2014.
As such, Mexico’s beef sector is looking to improve the production and profitability of calf suppliers. Breeders, cattle associations, meat packing companies and financing operations have embarked on an ambitious program to help develop these suppliers. The provisions of the program include advice, training, and technical support for breeding companies so as to improve the breeding rate and supply feeding operations with more calves. The program is designed to operate under contract as added assurance for all parties involved in the marketing channel.
End of Drought in Sight? Should Contribute to Cattle Inventory Recovery.
Dry and moderate drought conditions persist, but Mexico’s National Water Commission is advising that the 2013 rainy season will offer relief from the drought experienced over the past three years. Rains should help increase grain yields over the initial 2013 spring-summer crop cycle production forecast which is harvested between November 2013 to January 2014. This, in turn, should encourage cattle feeding. Moreover, pasture lands are returning to almost normal conditions in central and southern Mexico which should allow for cattle to return to these lands for grazing. The end result is that slaughter and carcass weights should move upward in 2013 and are expected to move even higher in 2014.
Additionally, the cattle sector is optimistic that seasonal and normal rains will permit cattle inventory recovery in the coming years. Nevertheless, Post forecasts that inventories will continue falling in the short-term through 2013 and 2014.
The Future of Live Cattle Exports Clouded by a Number of Factors
Post forecasts live cattle exports in 2014 to be 1.15 million head. This is lower than 2013 estimates of 1.2 million head which is a significant reduction over 2012 figure of 1.539 million head. The reduction of live cattle exports is due to a number of factors; namely perceptions that not enough heifers are remaining on hand for breeding purposes. In addition, a lack of steers throughout Mexico has forced domestic feedlot operations to bid competitively with foreign buyers to keep cattle in Mexico. If higher prices to producers persist, this should contribute to improvements in retaining breeding cattle and spur calf production in the mid to long-term.
Although Mexican data for the period of January to May 2013 shows live bovine exports at only 435 thousand, Post estimates that export figures could reach 1.2 million as exports customarily ramp up at the end of each year. As previously reported, the new export pen in the State of Nuevo Leon at the Colombia crossing point could contribute to increasing Mexican live cattle exports to the United States as the greater geographic accessibility of the pens could lower transaction costs. This will be feasible, however, only if the suppliers program succeeds in providing the platform to increase breeding rates to repopulate the domestic herd. Additional uncertainty surrounding the growth of live cattle exports are due to the plans of a large Mexican feedlot and slaughter operation to build an additional facility in northern Mexico which could give increased competition to live cattle trade when the facility is fully operational.
The Post 2014 total domestic beef consumption forecast is 1.81 MMT which is slightly higher than Post’s 2013 beef consumption estimate of 1.795 MMT. Higher beef prices and the difference in prices between beef and other proteins are leading to reduced per capita consumption. In addition, imports are occupying a smaller share of total consumption as over the past 10 years, Mexican producers have been able to improve food quality and safety and get their product in front of consumers as there has been growth in the variety of retail and commercial establishments available to them. The Post 2012 beef consumption estimate is marginally increased to 1.836 MMT from USDA official figures due to recently updated official data.
Per Capita Consumption Figures Falling
Post’s 2014 forecast and 2013 estimated consumption levels suggest that per capita consumption will be falling and rest between 15 and 16 kilograms per person. Industry sources echo this sentiment and site that higher production (and product costs) and reduced disposable income in mid and mid-low income households has led to shifting consumption patterns. Sources suggest that pork and poultry consumption and processed products (e.g., sausages with fillers) increasingly has been substituted for beef in recent years.
Post forecasts Mexico’s 2014 beef imports at 235,000 MT CWE and has reduced its import estimate for 2013 to 225,000 MT. High prices, limited supply, and changing consumption patterns along with higher weights for Mexican domestic cattle has reduced the need for imported beef muscle cuts. The closure of Russia, an important and growing market for Mexican beef exports, also may have been a contributing factor in reducing import demand as more beef became available on the domestic market. Post’s 2012 import figure of 215,000 MT is unchanged from USDA’s figure and based on official data.
The improved quality, food safety, and sophistication of Mexican beef operations have opened doors for increased Mexican beef exports over the past several years. Post’s 2014 Mexican beef export forecast is 220,000 MT and its 2013 estimate is 205,000 MT. Mexican beef exports had been growing sharply in previous years, but the loss of the Russian market with no foreseeable way forward has been a blow to expanded exports. This and other strategic opportunities are encouraging the Mexican industry to try and cultivate other markets for these cuts as well as others.
The Asian Market: An Opportunity for Mexican Beef Producers and Exporters
Given that an increasing share of domestic production is processed and distributed with certifications and superior quality standards, Mexican industry and government officials are continuing to look for expanded or new trade opportunities in the United States, Japan, Angola, Panama and several Asian countries. Primary cuts exported to the U.S. are rib eye, chuck roll, T-bone steaks, and tenderloins. Industry members in the State of Chihuahua are targeting Asian markets as a destination for their “rib” style beef cuts. Another new and unexplored market for Mexican beef exporters is Indonesia which recently opened up and is allowing 4 TIF establishments located in Mexicali, Baja California, to export fine beef cuts. Additionally, in 2013, exports to Hong Kong have been growing at significant rates and show promise as a new market for Mexican beef industry members.
The, image, below shows the “export map” of Mexican beef exported to the different world markets based on primary cuts.
Added-Value Exports on Target
The Mexican beef industry continues promoting the need to develop added-value product exports to strengthen all aspects of the beef marketing channel. Mexico has started the transition to trade boxed beef in larger volumes. Thus, the sector keeps encouraging members to improve processing activity efficiencies and better meet foreign market sanitary requirements.
As previously reported, Mexican meat sector representatives report that they feel threatened by Trans Pacific Partnership (TPP) negotiations and that the domestic meat sector could be in jeopardy as other TPP negotiating members may be able to offer less expensive beef products for supply into Mexico. They acknowledge that countries like Chile, Singapore, Peru, Malaysia and Vietnam could offer opportunities for Mexico but other countries such as Australia, New Zealand, and Canada represent a challenge to them domestically or in these other TPP/third-country markets.
Live Cattle Exporters Don’t Think COOL is Cool While Packers Report Price Discounts Are Long Standing
Several Mexican boxed beef exporters report that the May 24, 2013, USDA Final Rule on Country of Origin Labeling (COOL) has not impacted boxed beef exports as their product is considered “Product of Mexico”. According to industry contacts, price discounts for Mexican beef in the U.S. are largely a commercial issue and have been long-standing. On the other hand, Mexican live cattle shippers and industry members have been very vocal about their dislike of the measure and allege that it has caused economic harm to their industry as Mexican cattle slaughtered in the United States must be marketed as such.
The National Association of TIF Establishments (ANETIF) expects to launch a campaign to promote the responsible consumption of meat in Mexico. The goal is to encourage consumers to purchase TIF-certified meat in main consumption centers throughout the country as opposed to meat products processed or sold in wet markets.
NOTE: Mexico is a large market for beef offal and non-skeletal muscle cuts like skirt steak. Those commodities and the trade volumes are not included in the tables below which are based on CWE calculations for harmonized tariff system codes 0201, 0202, 021050, and 160250.
Animal Numbers, Swine Meat, Swine
The Post 2014 Mexican pork production forecast is 1.29 MMT CWE and the revised 2013 production estimate is 1.265 MMT CWE. This is due to the continued incorporation of new breeding lines, better farm management techniques, and increased slaughter weights that have allowed production of more meat from fewer hogs. In addition, industry members are expanding production with the potential opening of the Chinese market. Mexican access to China has been discussed at the head of state level and received significant industry and media attention in the first half of 2013. Post’s 2012 production estimate has been revised upward based on the latest preliminary official data from SAGARPA to 1.239 MMT CWE. The data shows that the state of Jalisco was responsible for 19.2 percent of pork production, followed by Sonora (18.6 percent), Puebla (9.9 percent), Guanajuato (8.7 percent), and Veracruz (8.6 percent).
Genetics Continue Improving and Additional Feeding Options are Developing
Genetic improvements are allowing the pork sector to nudge the live pig crop higher in 2014. These hogs also have better genetics and are able to gain desired market weights faster with improved rates of gain. Recently, the government of Mexico (GOM) restricted the import of swine for breeding purposes from the United States as a response to the porcine epidemic diarrhea (PED) outbreak. However, live breeding animals from other countries (e.g., Canada) and genetic materials can still be imported into Mexico which should help the industry to make continued production improvements.
Industry sources report that swine continue to be slaughtered at around 115 kg live weight with a carcass weight of around 82 kg. These members report that swine are held in feed lot operations for around 50 days.
Pork feed is based on yellow corn as well as sorghum and represents approximately 64 percent of the production cost. Industry sources report that although these feed grains are a staple, northern Mexico producers are feeding hogs with Durum wheat, which is seasonally over supplied, as a special request from interested customers. Spokespersons for the Mexican pork sector report that pork producers in the states of Sonora and Sinaloa have been requested to supply specific Asian markets with pork meat from animals exclusively fed on wheat. Reportedly, the taste, color and tenderness of resulting pork cuts are an added-value asset which is appreciated by high-end consumers.
The Post 2014 total pork consumption forecast is 1.96 MMT CWE as purchasing power gains as well as pork’s attractiveness in comparison with beef and poultry will continue contributing towards increased demand. This could be tempered, however, if the Chinese market opens and pushes prices higher while other suppliers are not able to immediately put product into the domestic market. Post’s 2013 estimate of pork consumption remains unchanged while the 2012 estimate was revised upward based on official data.
Pork Consumption Is On the Upswing
Middle income consumers (a smaller portion of the population) continue shifting consumption habits from poultry and beef back to pork due to high beef prices and more recently due to concerns over the widespread highly pathogenic avian influenza (HPAI) outbreak and increased poultry product prices. Reportedly, as well, promotion and marketing campaigns launched by the industry have been successful. It appears that pork is slowly gaining acceptance among consumer groups and shoppers as part of a healthy diet.
Prices Shape Buying and Production Decisions, but Culture Important, Too
Industry sources reported unusual consumption patterns and prices for early 2013. Usually, pork consumption and prices drop during the 40 days prior to Holy Week (i.e. Easter) however, pork prices moved lower than traditionally witnessed. Some sources blame the high volume of imported pork for keeping prices depressed while other signs indicate that some producers slaughtered larger numbers of swine in the latter part of 2012 and early part of 2013.
The Post 2014 import forecast is 790,000 MT CWE based on sustained strong demand and pork’s competitive prices. The trade forecast is based on higher demand from Mexican consumers who have greater purchasing power and a consumption preference for varied sources of animal protein. The Post 2013 pork import is also revised upwards slightly to 775,000 MT CWE as imports from the United States, Canada, Chile, and Spain are all growing. The majority of Mexico’s pork imports remain hams and picnic as well as mechanically deboned meat (MDM) for the preparation of sausages, deli hams, and other cold cuts. Post’s 2012 pork import figures were kept unchanged from official data.
Industry sources have indicated that the authorization of an export quota of 300,000 MT to China could lead to an increase of frozen pork meat imports as it would be used as export replacement in Mexico or, if allowed, possibly used in the preparation of exports for China.
Historically, trade data has indicated the United States is the main supplier to Mexico. Thus, no changes in this pattern are likely to occur in the short to medium term.
Mexican Pork Meat Exports: The Key to Open China’s Door for Other Products?
The Post pork export forecast for 2014 is 120,000 MT CWE as the country looks to open export markets in other Asian markets and has been able to steadily grow its exports in these markets. The Post forecast for 2013 is kept unchanged at 110,000 MT CWE as overall demand from Asian countries remains stable (although South Korea is not buying pork from Mexico right now, it appears that Japan’s purchases have stepped up). The sector has thus been able to continue supplying these markets with added-value products, with significant manual labor, at attractive prices. Post’s 2012 export estimate is unchanged and based on official data.
Jalisco is the main pork producing state but Sonora is the number one exporter. Industry sources report that out of every 10 MT exported, 9 MT comes from Sonora. Japan remains Mexico’s number one export market by volume and value. Pork meat exports are mostly loin to Japan, loin to the United States, and have traditionally been bone-in pork to South Korea.
The United States’ recognition of Mexican States as free of classical swine fever (CSF) has been one of the key factors to opening foreign markets for Mexican pork and sources suggest that expanded Mexican access for raw pork to the United States will serve to increase access to other countries. As such, one of Mexico’s most important trade policy goals with the United States is expanded pork access.
NOTE: Mexico is a large market for pork offals and other non-skeletal muscle items. The trade volumes reflected below are based on CWE calculations for harmonized tariff system codes 020311, 020312, 020319, 020321, 020322, 020329, 021011, 021012, 021019, 160241,160242, and 160249