LATEST export figures compiled by USMEF (US Meat Export Federation) confirm that the recent increase in duty rate (from 38.5pc to 50pc) on frozen US beef into the Japanese market is starting to have an effect.
The US triggered Japan’s safeguard volume for frozen beef in late July but August continued to record the kind of runaway growth that the US has enjoyed in this market throughout the current year.
August tonnage for muscle cuts was 26,724, up 14pc on July and a whopping 41pc on same month 2016.
But while still a very considerable volume at 23,183t, the September result is a noticeable reduction on the previous month.
With a month’s lag in publication it will be this time in December before we see the US figures for October but the prospect of losing momentum in this market clearly has spiked some concern over there.
While commenting on the pleasing nature of continuing solid demand for US beef in Japan, USMEF CEO Phillip Seng said, “But the 11.5pc duty rate increase needs to be closely monitored to ascertain where market dislocation will occur.
“We are watching this situation carefully and remain very concerned about the widening gap in duty rates between US beef and Australian beef.”
Between August and September Australia saw its export tonnage to Japan drop by 6000t (20pc) from 29,000 to 23,000t and this remained the situation in October but early figures for November are encouraging.
DAWR’s (Department of Agriculture and Water Resources) progressive count to November 9 suggests 26,000t for the full month is possible if the current rate of shipment is maintained.
While this may be a positive for Australia, the time frame of the tariff-advantage benefit is limited to when the US can commence shipping for the new Japanese trading year which begins 1 April 2018.
Further increases ahead
AT this time of year with the last shipments of beef being consigned to reach US ports for the 2017 calendar year, thoughts are turning to what lies ahead in 2018.
Some Australian exporters have recently taken the opportunity to visit the US with a view to discovering where opportunity might lay for Australian product in that market in the coming year.
No doubt they were also keen to pick up on any productivity and price trend expectations over there that would likely impact the competitive position of the US as a major export player in global markets.
Regrettably it would seem on both counts that the outlook is not particularly encouraging.
Beef production is a key driver and all indications point to increased US production in 2018 and 2019.
MLA’s contracted analyst in the US, Steiner Consulting, puts total beef production increase in 2018 at 4.4pc and another 2.9pc on top of that in 2019.
This in large part is due to the beef herd continuing to increase on the back of good pasture conditions and ample feed supplies.
The increased size of the herd will in turn lead to an increase in cattle slaughter of 3.1pc in 2018 according to Steiner and 2pc in 2019.
Carcass weights in 2017 were down 1.4pc but that is expected to return to trend in 2018 adding 400 million pounds to the equation.
This is expected to occur because futures are indicating a significant premium for spring (northern hemisphere) contracts which should encourage producers to feed cattle a bit longer.
The situation was the reverse in 2016 where significant forward discounts encouraged producers to turn cattle faster reducing overall carcass weights.
As well in 2016 there were more heifers and cows in the mix which contributed to lower average carcass weights.
Growth in production means there has to be a commensurate shift in demand if price falls in cattle and beef are to be avoided.
On this point Steiner believes there will be a continuation of higher-than-expected demand experienced to date but the production increases will still result in a modest decline in cattle and beef prices in the next two years.
That the expected decline in prices can be contained to a modest level however is very much dependent on the broader performance of the US and global economy and how that impacts US domestic demand and export orders respectively.
In 2016, beef exports rose by 12.7pc and are expected to raise a further 12.9pc this year.
Beef imports on the other hand have contracted for two consecutive years and they are expected to be marginally lower in 2018 and 2019 as well.
With herd expansion in Australia not yet delivering any significant increase in supply of slaughter stock, processors here are faced with continuing upward pressure on cattle prices while import demand in the US remains subdued.
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