US beef sector trends
and impact on global trade
Bord Bia Meat Prospects Seminar
January 9th 2015
Richard Brown: sourced from Gira Meat Club, Dec 2014
+44 1323 870144 rbrown@girafood.com
US beef sector situation
Global beef trade impact
US Beef Balance Sheet
Recent sharp supply declines for beef (and tight 2014 PY
and PK supply) led to record US meat pricing
US Beef balance 2003-15f (000 t cwe)
14,000
12,000
'000 t cwe
10,000
8,000
6,000
4,000
Production
Consumption
Imports
Exports
2,000
0
GIRA compilations, estimates and forecasts
3
Cow Herd and Calf Crop
Stark message of tight supplies
35
30
39.00
38.00
37.00
25
million head
36.00
20
15
35.00
Dairy cows
34.00
Beef cows
33.00
Calf crop
10
32.00
5
0
31.00
30.00
GIRA compilations, estimates and forecasts
 Historic trend of declining cattle supply is the most important factor facing all segments of the
industry:
 … until now: when breeding herd recovery is starting
4
US Cow Calf rancher margins vs Expansion
This industry has not expanded despite modest historic
profits
US Cow Calf Margins and Change in Herd
10%
Margin
400
8%
YoY Change in Herd
6%
300
$/head
4%
200
2%
0%
100
-2%
0
75
77
79
81
83
85
87
89
91
93
95
97
99
01
03
05
07
09
11
-100
13
-4%
Year over Year Change in Herd
500
-6%
 Usually, after a series of profitable years, ranchers start to retain cows and expand.
 There has been enough $ incentive to expand...based on history
 …other factors? Demographics, risk aversion, opportunity costs
 Drought in cow-calf regions…major issue for 2011-2013
 2013 and 2014 still no expansion
5
US Female Slaughter
Dramatic reduction in slaughter…signals more supply
challenges for immediate future
14,000,000
Cow and Heifer Slaughter
12,000,000
10,000,000
8,000,000
Cows
6,000,000
Heifers
4,000,000
2,000,000
0
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14
 18% reduction in cow slaughter in 2014
 8% reduction in heifer slaughter in 2014
 Message: Tight current slaughterings … but finally herd expansion!
6
Consumption and Pricing Patterns
Higher prices cause declining consumption
50
16
45
14
40
kg cwe
30
10
25
8
20
6
USD/kg product
12
35
P.C. Consumption
Retail price
15
4
10
5
0
2
0
GIRA compilations, estimates and forecasts
 Retail prices soar in response to cattle and beef costs.
 Consumers respond rationally by reducing consumption but:
• Beef expenditures indicate strong demand
• Pork and poultrymeat were also very high priced through 2014
 Might more PK & PY supply undermine 2015 BF price? We think not!
7
US BF Export Tonnage and Pricing
Impressive performance despite reduced production
Exports and Pricing
8,000
1,200
Exports
7,000
Export Prices
6,000
000 Tonnes
1,000
5,000
800
4,000
600
3,000
400
$/Tonne
1,400
2,000
200
1,000
0
0
00
01
02
03
04
05
06
07
08
09
10
11
12
13 14e 15f
 Prices in export markets are strong.
 Tonnage increased despite reduced production.
8
US Beef Imports
Strong U.S. BF pricing draws product
Imports and Pricing
1,800
Imports
1,600
5,000
Import Prices
1,400
1,200
4,000
1,000
3,000
800
600
$/Tonne
000 Tonnes
6,000
2,000
400
1,000
200
0
0
00
01
02
03
04
05
06
07
08
09
10
11
12
13 14e 15f
 Short market with higher prices draws major increases in 2014 tonnage.
 … but lack of global availability limits import supply for 2015f
9
Live Imports
Imports drawn in due to tight domestic supplies
1,800,000
Live Imports
1,600,000
1,400,000
1,200,000
1,000,000
Mexico
800,000
Canada
600,000
400,000
200,000
0
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14e
 Strong live import pull despite COOL.
 Record high US feeder cattle prices pull cattle from Mexico and Canada.
 Regional importance to Texas and Northern Tier states
10
Pricing and Supply
A new demand driven plateau
US Beef Supply vs. Live Price
380
14e
330
Live Price US$/ckg
280
13 12
11
230
10
180
90
93
92
91
'08
'03
'09
94
130
9597
96
98
99
'01 '00
'05'04 '07
'06
'02
80
10.5
11.0
11.5
12.0
12.5
13.0
Billion Kgs
 Export demand creates new pricing levels.
 Prices hit new record driven by very low production and excellent demand.
11
Total US meat consumption and price evolution
US meat demand has been remarkably stable
US meat demand: per capita
consumption (kg cwe) vs. meat CPI
Total US meat consumption (000 t cwe)
20,000
300
18,000
12,000
Beef
10,000
Sheepmeat
Pigmeat
8,000
Poultrymeat
6,000
Consumer Price Index
14,000
'000 t cwe
14
250
16,000
1213 11
200
10
09
08
03
150
07
06
05
04
02
100
50
4,000
0
2,000
0
2009
112
2010
2011
2012
2013
2014e 2015f
114
116
118
120
122
124
126
128
Per Capita Consumption
GIRA compilations, estimates and forecasts
 Per capita consumption has declined to 114kg cwe … but at higher prices
 Prices hit new records driven by very low production and robust demand … in an
improving, but unexciting economy
12
US Beef Key Elements 2015f
Every aspect evolves around the lower production
6%
4%
2%
0%
-2%
Production
Consumption
Imports
Exports
Cattle Price
-4%
-6%
-8%
-10%
-12%
-14%
-16%
 Lower production due cattle shortage
 Imports are in demand but not available
 Consumption and exports ease due to production and price rise (Gira forecast lower than futures market suggests)
 Only major risk is that US PK and PY rise by more than the 3% Gira expects
13
US beef sector situation
Global beef trade impact
2015: global overall meat market characteristics
Profit consolidation in a year of low feed costs … for
most, but not all!
 2013: year of caution: feed cost
 2014: year of contradiction: disruptions … very profitable for many (not EU)
 2015 Economic growth should be better: but much more risk than prior years
• Major risk of RU economic & banking crisis: threat to import volumes and origins … and
therefore prices
 Modest 1.3% global meat production & consumption growth
• still at lower rate than historical average




Low feed costs
More typical trade patterns & growth @ 2%: subject to RU
Scope for profitable year
CN meat industry profit expected to improve
• Better import opportunities
 Persistent high US meat prices: especially BF
 Somewhat bleak EU outlook for PK mainly … and processors
 Continued high-alert on diseases: ASF spreading, PEDv in US and xxx, etc
15
2015 Beef Headlines
Tight supply, in a reasonable demand environment
should maintain price levels … but there are risks
 Modest cattle herd rebuilding in many countries
• Specialist beef herds and also dairy farms
 Production: -0.7% globally, as US production is so constrained (and AU)
• BR being the most positive major producer @ +3%, illustrative of other serious S.Americans
− Slaughter cattle supply: still tight. Intensification: catalysed by global demand outlook and cheap feed
• Indian growth will continue
− Expanding dairy herd (buffalo & cows)
− Increased offtake rate: made possible by higher prices. Assumes BJP does not impede
 Demand reasonably robust: especially in N & S America and Asia
 Prices stable: at a relatively high level
 Trade marginally down: Import demand is OK, but supply is tight
• Risk: a Russian economic crisis will slash their import demand
 US supply tightness will continue
• Lower domestic supply … with some temptation to draw in more live cattle
• Lower meat import availability from traditional partners: some further access
 AU production and export will fall sharply – assuming pastoral conditions recover
• Much tougher times for the processors
16
Beef & Veal Net Production by Country
The US decline shows a striking 2014/15 decline in
response to low cattle supply. AU drought impact
17
Global Beef & Veal Imports
Chinese import demand continues growth
18
Global Beef & Veal Exports
India reinforces its position as the world’s largest exporter
… of buffalo … to CN (eventually)
19
Cattle producer prices in current EUR/t cwe
Higher 2015f prices, lead by the US … and even applying
to EU
Figure SYN-BF 10a
Cattle Producer Prices, 2003-2015 (current EUR/t cwe)
6,000
US
5,000
EU Male beef
R3
RU
4,000
EU Cow
3,000
AR
2,000
UY
AU
1,000
BR
0
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
20
AU beef production to fall in 2015
following 2 year drought fuelled ‘boost’
Australian Beef balance 2003-15f (000 t cwe)
2015 AU exports will decline as Australian
production is supply constrained…
Australian Total Beef Exports (Fresh + Frozen), 2003-15f
22
Conclusion for Irish BF sector
Better outlook … after a disappointing year
 Tighter EU BF supply:demand balance
• Some uplift in beef demand as EU economies improve
• Production decrease
 Tight global BF supply situation
 Robust global BF demand
 Important new Irish BF export opportunity to US
•
•
•
•
•
•
US BF supply shortage: from domestic production and import origins
Robust US beef demand … and record cattle and beef prices
Some caution in 2015 US supply increase for the other proteins
USDA “Beef equivalence reinstatement audit for Ireland” …
Commodity export opportunities: short term?
Niche export opportunities: Irish-origin should be defensible for a long time
THANK YOU FOR YOUR ATTENTION
23