Cattle and Beef
As herd liquidation slows in 1999, falling world beef production is expected to result in higher prices. Beef imports are expected to rise modestly in Japan and Mexico, but imports into Russia will remain weak following the August 1998 ruble crisis. U.S. exports are expected to benefit from a beef food aid package to Russia in 1999.
Cattle inventories in the selected countries covered in this report were slightly over 1 billion head on January 1, 1999, virtually unchanged from the previous year. Inventories declined about 2.5 million head in North America, 1.4 million in South America, and 1.3 million head in Oceania. However, the deepest drop in cattle inventories was in the Former Soviet Union where cattle inventories fell nearly 5 million head, continuing a long-term decline. China was the major exception as cattle inventories were estimated to have expanded 6 million head. In 1999, most major cattle producing regions are expected to continue liquidating their herds, but at a slower pace.
Fewer cattle are projected to be slaughtered in 1999 as many of the major cattle producing countries move towards the expansion phase of their cattle cycles. As a result, beef production among the selected countries is expected to decline 1 percent in 1999 to 48.4 million tons. Of the major producers, only Argentina and China are projected to produce more beef in 1999 than in 1998.
Due to tighter supplies and rising prices, beef consumption in 1999 is projected to dip to 47.5 million tons, less than 1 percent below 1998. Beef consumption is expected to decline 2 percent in North America and 1 percent in South America. Consumption growth is expected to remain sluggish in the European Union, while Asia is forecast to experience the strongest consumption growth. Beef consumption in Russia is projected to continue dropping.
Exports fell in 1998 because of sharply lower EU exports following the Russian ruble crisis in August and reduced Argentine shipments due to high domestic prices. Beef exports from the selected countries are expected to increase about 2 percent in 1999 to 5.3 million tons. The United States and Canada are projected to expand beef exports in 1999. Argentine shipments are expected to rebound due to weakening cattle prices and Brazilian beef exports are likely to expand because of the currency devaluation. Exports from Australia and New Zealand are projected to fall 5 percent in 1999.
U.S. cattle inventories were 98.5 million head on January 1, 1999, about 1 percent lower than a year earlier. The 1998 calf crop, at nearly 38.6 million head, was significantly stronger than expected as there was significant herd rebuilding in the Upper Plains states. Heifer slaughter remained relatively high in 1998. Beginning inventories for beef cows and beef replacement heifers were lower than in 1998, indicating that beef cow inventories will decline during 1999, delaying expansion of the U.S. herd until after 2000.
Cattle imports in 1998 were slightly over 2 million head and are projected to fall about 4 percent in 1999. Fewer cattle are expected to be shipped from Canada as the Canadian herd contracts and slaughter capacity expands in western Canada. The U.S. cattle industry awaits the final determination from the International Trade Commission (ITC) concerning live cattle imports from Canada. In January, the ITC found that the U.S. cattle industry is materially injured, or threatened with material injury, by imports. The Department of Commerce is now conducting countervailing duty and antidumping investigations and is scheduled to issue its findings in May.
In 1998, total U.S. cattle and calf slaughter declined about 3 percent to 37.1 million head. However, beef production increased almost 1 percent as record slaughter weights offset slaughter declines. In 1999, slaughter is expected to fall 2 percent; beef production is also projected to decline, but at a slower pace. Mild winter conditions have again led to higher average cattle weights, tempering beef production declines.
Beef imports rose almost 13 percent in 1998 to nearly 1.2 million tons as reduced cow slaughter increased the demand for manufacturing grade beef and economic crises in other markets made the United States attractive. Beef imports in 1999 are expected to surpass 1.2 million tons, slightly higher than in 1998. Although expectations for higher cattle prices have been tempered, slightly higher U.S. cattle prices and slack global demand for beef will attract more beef imports in 1999.
U.S. cattle exports in 1999, at 300,000 head, are expected to be the strongest since 1992 as Canada's relaxation of some regulations is expected to move more cattle through the Northwest Cattle Project (NWCP). Under the NWCP, cattle can be shipped from October 15-March 31. During the current season, U.S. exports have already surpassed 40,000 head, compared with 1,000 last season.
U.S. beef exports are projected to surpass 1 million tons in 1999. In 1998, U.S. exports reached a record 985,000 tons. Global demand, especially in Asia, is expected to remain slack in 1999 and only small increases are expected in the large U.S. export markets, such as Japan and Mexico. But the beef included in the food aid package to Russia is expected to provide strong support to U.S. beef exports in 1999.
This year is expected to be a turning point for the United States as regards the EU's decade-long ban on imports of beef from hormone treated cattle, which has cost the U.S. industry substantial losses in annual sales. On May 29, 1998, a WTO arbitrator decided in favor of the United States on the issue, requiring the EU to comply promptly with its WTO obligations by removing the ban no later than May 13, 1999. European officials have interpreted the decision differently, and are currently conducting scientific risk assessments related to hormone use in cattle. U.S. trade negotiators have proposed a labeling plan that would allow EU consumers decide whether to eat U.S. beef. Barring a major breakthrough, the United States is expected to begin preparing a retaliation list of EU goods.
Cattle herd liquidation in Canada continued in 1998, and inventories declined 2 percent to 12.8 million head by the end of the year. Declining cow numbers, lower heifer retention, and a reduced calf crop indicate inventories and beef production will continue falling well into the year 2000.
Cattle slaughter is expected to fall moderately in 1999, leading to a 3-percent drop in beef production to 1.1 million tons. Live exports of cattle to the United States are expected to continue falling over the next few years as expanded, modernized western Canadian slaughter plants increasingly bid domestic cattle away from U.S. plants.
After peaking in 1996, Canadian cattle exports have declined steadily and are expected to fall 7 percent in 1999 to 1.2 million head. Cattle imports rose over 100 percent in 1998 reflecting expanding U.S. feeder cattle exports under the Northwest Cattle Project (NWCP). The NWCP allows certain approved U.S. states to export feeder calves to Canada during the fall and winter months without testing for certain diseases. Trade under the Project was facilitated after Canada amended certain regulations governing the program in August 1998. Due to the NWCP, Canadian cattle imports are expected to continue growing at a brisk pace in 1999.
Canadian beef exports, which have more than tripled since 1990, grew about 13 percent in 1998 to 405,000 tons. Exports to the United States accounted for nearly all of the growth in 1998 as demand was weak in key Asian markets. This trend of increasing beef exports to the United States as exports of cattle decline is expected to continue. Total beef exports are forecast to grow 5 percent in 1999. Beef imports, particularly those from the United States, are expected to continue declining, reflecting increased competition from Canadian packers and lower U.S. supplies. Imports are forecast to fall 4 percent in 1999 to 230,000 tons.
On January 19, 1999, the U. S. International Trade Commission (ITC) found that the U.S. cattle industry is injured due to imports of live cattle from Canada that are allegedly subsidized and sold in the U.S. market at less than fair value. The investigation continues, and preliminary determinations in these antidumping and countervailing duty cases are expected in early May.
Current trends in world cattle-beef trade point to an increasing demand for animal identification and traceability. The Canadian Cattle Identification Agency is developing an individual traceback system for cattle for health and safety purposes, and to ensure traceability to foreign buyers. A voluntary system is being aimed for in 1999, with possible implementation of a mandatory system by the year 2000.
Cattle inventories fell 4 percent in 1998 to 24.6 million head as the drought in several northern regions forced continued liquidation of herds. Inventories are expected to decline 3 percent in 1999, reflecting high slaughter rates as the current drought continues. Slaughter is expected to reach a third of cattle numbers in 1999.
Faced with low profitability, large overdue loans, and tight credit, Mexican cattle producers have been unable to modernize and make their operations more efficient. Cattle exports rose 8 percent in 1998 to 721,000 head as dry conditions in northern Mexico forced cow-calf operators to sell off breeding cows and bulls in addition to the mainstay feeder calves. Exports are expected to rise slightly in 1999 due to strengthening U.S. feeder prices.
Cattle imports fell sharply in 1998 to 177,000 head as shipments from the United States declined. Imports are expected to decline further in 1999 as cattle supplies from the United States and other suppliers tighten.
Due to reduced cattle inventories, beef production in Mexico is expected to fall slightly in 1999, to 1.8 million tons. Beef consumption is expected to grow more modestly in 1999 than it did in 1998, and the shortfall in production is expected to be met by higher imports. Total beef imports are expected to rise moderately in 1999, to 208,000 tons. Mexico's consumer boom during the first part of 1998 slowed considerably beginning in November as higher interest rates, a weakening currency, and a domestic gas price hike lowered disposable incomes. On October 21, 1998, the Government of Mexico officially announced its intention to proceed with the initial investigation of the anti-dumping claim presented by the Mexican Feeder's Association (AMEG), Mexican Cattlemen's Confederation (CNG) and several federally inspected slaughter plants (TIFs). The petitioners claim that imports of U.S. slaughter cattle, beef carcasses, boxed beef, and variety meats were sold at less than fair value in Mexico from June 1997 to March 1998. The investigation continues and a decision is expected by early April 1999.
In 1998, a modest herd rebuilding characterized the Argentine cattle industry; inventories were 49.6 million head by the end of 1998. Following the high prices in the first half of the year, cattle prices began to slide beginning in August. Prices were bolstered in the first part of the year by tighter supplies following herd liquidation which began in 1993, a low calf crop in 1996, and strong domestic demand. The trend in falling prices more recently is related to several factors, including spillover effects of the Brazilian economic crisis which is slowing the local economy and thus consumption, and higher beef production in the latter part of 1998 reflecting higher slaughter and heavier slaughter weights. A slight increase in cattle inventories is expected in 1999.
Not since 1986 had Argentine beef exports been as low as those in 1998. High Argentine prices relative to world prices in 1998 resulted in lost export markets and lost market share. Germany was the top export destination in 1998, followed by the United States and Chile. Rebounding from the slump in 1998, beef exports are expected to rise 25 percent in 1999 to 350,000 tons due to higher production and more competitive prices. Exports to the United States under the 20,000 ton tariff rate quota (pwe) are expected to rise to about 12,000 tons (pwe) as tighter U.S. beef supplies attract imports.
Beginning April 1999, the Government of Argentina will no longer continue the foot and mouth disease vaccination campaign, after five years with no outbreaks. The sanitary status of being free without vaccination should pave the way for Argentine beef exports into countries like Japan, Mexico, and Indonesia which apply the "zero risk" status for imports. However, no big increase in exports is expected.
The Government of Argentina recently reduced the value-added tax on cattle and beef (excluding that applied to retail beef) from 21 to 10.5 percent. This action is expected to reduce black market trade in beef and create a more level playing field for beef exporters. The meat packing industry has experienced some restructuring, which is expected to make exporters more competitive.
The impact of the January 1999 devaluation of the Real on the Brazilian livestock and meat sector is uncertain. Following the herd liquidation which began in 1995, cattle inventories in 1999 are expected to remain almost flat as cattlemen retain some cattle in hopes of higher prices. Slaughter is expected to decline slightly this year, leading to a modest reduction in beef production, to 6.1 million tons.
The immediate effect of the January devaluation was higher beef prices. In the initial weeks of the crisis, consumers protested against higher prices for beef, and the larger supermarket chains reportedly refused the higher prices demanded by local meat suppliers. Prices are apparently stabilizing; however, tighter domestic beef supplies in 1999 are expected to raise domestic beef prices somewhat during the year. Consumption of beef is thus expected to decline 2 percent this year.
Beef exports expanded rapidly in 1998, to 335,000 tons. The European Union captured 62 percent of exports, while exports to the Middle East comprised 21 percent. Export growth was particularly strong to the Middle East, climbing 64 percent. Brazilian beef exporters remain cautious about the outcome of the decision to let the Real float, yet they expect a boost to exports due to the increased competitiveness of Brazilian product. In 1999, beef exports are forecast to rise 25 percent, to 420,000 tons. Due to the effects of the devaluation, beef imports are expected to fall sharply in 1999.
The 1996 Bovine Spongiform Encephalopathy (BSE ) crisis in Europe continues to have an impact on the cattle and beef sector. The sector has also been under pressure due to large pork and poultry supplies. Due to continuing declines in EU cattle inventories, beef production is expected to continue falling in 1999. Beef consumption, which has been recovering slowly since 1997 is nonetheless not expected to reach pre-crisis levels this year. EU beef exporters suffered a major blow in 1998, as their primary export market, Russia, sharply reduced imports following the August currency crisis.
Declining since 1996, EU cattle inventories are expected to continue falling in 1999 to 77 million head by the end of the year. Large numbers of UK cattle continue to be disposed of under the Over Thirty Months Scheme, a BSE control measure which involves the destruction of cattle over thirty months of age. EU calves continue to be removed from the food chain under the Calf Processing Aid Scheme, and has resulted in the retention of heifers over calves. Due to reduced slaughter, beef production is expected to fall slightly in 1999, to 7 million tons.
The Russian ruble devaluation in August 1998 had a major impact on EU beef exports, as Russia typically purchases over 40 percent of EU exports. Despite export strength early in the year, EU beef exports plunged 18 percent overall in 1998, to 735,000 tons. EU exporters scrambled to find substitute markets, most notably in the Middle East and North Africa. In 1999, exports are expected to decline slightly, reflecting continued weakness in the Russian market. The EU agreed in January 1999 to supply Russia with 150,000 tons of beef as food aid in 1999. The food aid is to be sent in several tranches to give the EU the option of stopping deliveries if it is not satisfied with Russian distribution controls.
On March 11, 1999, EU Agriculture ministers reached a political agreement on an agricultural reform package which included changes in the EU beef regime. The reform cuts the support price for beef by 20 percent over 3 years. Intervention buying of beef is to be replaced by private storage aid and a safety net at 1,560 euro/mt. Compensation for the support price cut is being offered through increased direct payments for certain types of cattle and a new EU-wide slaughter premium. The EU objective is to export beef without subsidies, but this will depend on market conditions.
On November 23, 1998, European Agriculture Ministers voted to allow Great Britain to resume its exports of beef under the Date Based Export Scheme (DBES), requiring careful tracking of cattle born since August 1996. An EU Commission inspection which examines the DBES control measures will be necessary before exports can actually resume; beef exports from Great Britain are not expected to resume until the spring of 1999 and are projected to be quite modest.
The Russian livestock situation is expected to further deteriorate in 1999 as structural and market inefficiencies continue to hamper the domestic industry. Cattle production continues to shift away from the large collective farms to small farms, but is constrained by poor infrastructure and undeveloped business relations between producers and processors. Beginning cattle inventories for 1999 were 28.6 million head, almost 10 percent less than in 1998. Beef production is expected to drop 9 percent 1.9 million tons in 1999 as inventories continue to shrink.
Beef consumption in Russia dropped 16 percent in 1998 and is expected to fall 13 percent in 1999. After the ruble devaluation in August 1998, retail beef prices rose sharply and consumption tumbled.
Beef imports in the second half of the year also collapsed with the devaluation. Estimates for 1998 indicate that beef imports fell over 30 percent to 430,000 tons. In 1999, Russian beef imports will be heavily weighted towards food aid shipments. Food aid agreements with the United States (120,000 tons of beef-including offal-on a product weight basis) and the European Union (150,000 tons) will account for nearly three-quarters of expected Russian imports of 400,000 tons, excluding offal. Beef shipped under the food aid packages is targeted for areas of critical shortages and will be sold commercially at market prices.
After dropping in 1996 because of food safety concerns, beef consumption in Japan continued its gradual rise in 1998, increasing 1 percent to about 1.5 million tons. Consumption is expected to increase 1 percent in 1999. Imports are increasingly accounting for a larger share of consumption, and were 4 percent higher at 957,000 tons in 1998 as demand for lower valued frozen cuts was strong. Frozen beef is heavily used in the hotel/restaurant industry (HRI) and the home meal replacement (HMR) sector for Japanese fast foods, Korean style BBQ, and lunch boxes that are sold in retail chains and convenience stores. However, retail demand remained sluggish, with household beef consumption projected down about 4 percent in 1998.
Chilled beef imports declined in 1998 but frozen beef imports were estimated 12 percent higher than in 1997, reflecting the strength in the HRI/HMR sectors. Frozen imports from the United States grew 15 percent while those from Australia gained 10 percent. Chilled imports dropped 4 percent for both the United States and Australia. For total beef imports, market share was unchanged in 1998, with the United States capturing 48 percent compared with Australia's 47 percent.
Imports are projected to rise about 2 percent to 978,000 tons in 1999. The trend towards increased imports of frozen beef is expected to continue into 1999. Given continued uncertainty in the economy, Japanese importers and consumers are expected to purchase competitively priced beef. Australia's lower prices could translate into stronger gains for the lower priced frozen, grassfed beef.
Beginning Korean cattle inventories on January 1, 1999 totaled an estimated 2.9 million head, down 11 percent from a year earlier. As the financial crisis took hold in Korea in late 1997 cattle producers liquidated herds. Slaughter, which accelerated at the end of 1997 and continued strong through 1998, jumped 14 percent to 1.3 million head in 1998. The sharp rise in slaughter resulted in a 15-percent increase in beef production to 355,000 tons in 1998. In 1999, production is expected to fall to 250,000 tons as slaughter is sharply curtailed.
Beef consumption dropped sharply at the beginning of 1998 but gradually recovered during the year. Consumption was estimated at 433,000 tons in 1998, about 10 percent lower than in 1997. Most of the decline in consumption was at the expense of imported beef. Imports accounted for about 25 percent of consumption in 1998, compared with an average of well over 40 percent in preceding years. In 1999, consumption is expected to recover slightly to about 440,000 tons.
Korea imported 107,000 tons of beef in 1998, 47 percent less than in 1997. Moreover, Korea only imported 40 percent of the 255,000 tons (or 187,000 tons retail weight equivalent) that it was obligated to import under its WTO minimum access quota commitments. In 1998, Korea's simultaneous-buy-sell (SBS) super groups were supposed to import 60 percent of the quota and the government's state trading entity-Livestock Products Marketing Organization (LPMO)-was to import 40 percent. Although LPMO issued tenders for its share of the quota in 1998, it unilaterally scheduled delivery dates throughout the first half of 1999. In 1999, Korean beef imports are projected to rise to 180,000 tons, still falling short of its WTO commitments.
Beef consumption in Taiwan declined slightly in 1998 after surging in 1997 because of the outbreak of foot-and-mouth disease that sent consumers to other meats. Imports of beef have paralleled movement in consumption as over 90 percent of Taiwan's beef demand is satisfied through imports. In 1998, imports are estimated to have declined 2 percent to 73,000 tons as consumers in Taiwan substantially increased pork consumption. Also, the weakness of the New Taiwan dollar led to lost purchasing power which would tend to reduce purchases of higher cost beef relative to other meats.
Australia was the leading supplier of beef in Taiwan in 1998, accounting for more than 50 percent of imports. The United States, with about a 23-percent share, is likely to be the second leading beef supplier, surpassing New Zealand's shipments for the second year in a row. In 1999, beef imports are projected to increase about 1 percent.
The United States has a 5,000-ton quota for beef offal that was negotiated as part of Taiwan's initial market access in gaining WTO accession. In 1998, only about 1,900 tons were imported under the quota. Imports of U.S. beef offal are expected to increase in 1999 as Taiwan importers work with U.S. meat plants to provide the product specifications most desired in Taiwan.
Beef consumption rose 20 percent to 73,000 tons in 1998 mainly as consumers switched meat purchases away from poultry because of the avian influenza crisis of late 1997 and early 1998. However, the beef market is at its saturation point and consumption is expected to remain flat in 1999. A shift in purchasing patterns by Hong Kong consumers to increased supermarket purchases is leading to increased demand for frozen beef. This trend will likely result in expanded imports of beef. In 1998, imports rose 20 percent to 60,000 tons as consumption soared. One factor that has pulled more beef into Hong Kong has been increased demand in China for beef that is re-exported from Hong Kong to supply hotels and restaurants in China. In 1999, Hong Kong's imports are expected to rise 2 percent.
In 1998, China was the leading supplier of beef, followed by the United States, New Zealand, and Australia. In the chilled beef market-used primarily in hotels and restaurants-New Zealand product was substituted for U.S. product, except in the top line hotels, because New Zealand prices were about a third of U.S. chilled beef prices. Hong Kong's sluggish economy in 1998, and continued uncertainty in 1999, will encourage Hong Kong importers to continue to purchase lower priced beef.
China's beginning 1999 cattle inventory is believed to be about 123 million head, 5 percent higher than in 1998. China's cattle herd has been expanding about 5-6 percent per year during the last several years. Slaughter was 21 million head in 1998 and is expected to be 4 percent higher in 1999 at 21.8 million head. Beef production is forecast to rise to 4.7 million tons, up from nearly 4.5 million tons in 1998.
Beef prices, which have been trending down since 1996, dropped again in 1998. The Asian financial crisis reduced demand for China's exports, and abundant supplies of meat in China, especially pork, have pushed prices downward.
China imports very little beef, about 5,000 tons in 1998, with three-quarters of the imports coming in from Australia. China restricts imports with high tariffs plus a value-added tax. Hotels, restaurants, and food processors are allowed limited imports. China has been a growing market for beef offal imports. Nearly 11,000 tons of beef offal were directly imported in 1998, and then nearly double this amount was re-exported from Hong Kong into China.
China exported considerably more beef than it imported. China Customs reported that China's exports reached 43,000 tons in 1998, 37 percent stronger than in 1997. The majority of Chinese beef exports were destined for Russia.
Cattle inventories fell 4 percent to 25.7 million on January 1, 1999 as high slaughter rates in 1998 reduced Australia's herd. Slaughter increased 2 percent to nearly 9.4 million head in 1998 as dry conditions resulting from El Nino led to high slaughter in the early part of the year. Furthermore, the collapse of live cattle trade due to the Asian financial crisis, especially in Indonesia, also contributed to increased slaughter. In the latter part of 1998, improved weather conditions led to better quality cattle and higher prices. As conditions and prices improved, producers increased cattle marketings. As a result, beef production reached nearly 2 million tons. Production is expected to fall in 1999 as slaughter is reduced.
Australian beef exports advanced almost 7 percent to more than 1.2 million tons in 1998 on increased sales to the United States and Japan. In 1999, Australian exports are expected to contract, although shipments to the United States are likely to increase and Japan is expected to remain steady. However, Australia's relatively lower beef prices could provide an edge in the Japanese market. But the market in Korea is expected to remain weak, and last year's advances in Russia are not likely to be matched in 1999.
Australia's live cattle trade is expected to pick up in 1999 to about 600,000 head, but still well below the 948,000 head exported in 1997, that is, prior to the Asian financial crisis. In spite of economic difficulties, trade with Indonesia improved at the end of last year. Australia also made some advances in trade to the Middle East, Libya, and Egypt overall in 1998. Future gains in these markets will depend largely on Ireland's return to the market.
New Zealand is expected to begin rebuilding its cattle herd during 1999. Inventories at the start of the year had fallen to about 8.9 million head. El Nino drought conditions persisted in 1998 causing producers to continue to send cattle to slaughter at a relatively high rate, although below the 1997 level. In 1999, producers are expected to retain dairy calves to rebuild the beef herd. With increased calf production and reduced slaughter, New Zealand's herd is projected to be above 9 million head by the end of 1999.
Beef production declined nearly 7 percent to 620,000 tons in 1998, a greater decline than slaughter as animal weights fell due to poor weather conditions. Production in 1999 is expected to remain stable, with improved weights compensating for reduced slaughter numbers.
Beef exports declined 2 percent in 1998. Although New Zealand's exports to the United States increased to over 200,000 tons, New Zealand lost ground in Canada, Japan, Taiwan, and Korea. Exports are expected to decline again in 1999 as competition in global markets increases and New Zealand rebuilds its herd.
For further information, contact Monica Castillo, (202) 720-7285 or Joel Greene, (202) 720-6553.