Mining for global gold
Feb. 6, 2012
by Bryan Salvage
Just as the oceans are the last frontier on Earth, exporting products may well be the last business frontier for US meat and poultry companies. Yes, growth and sales opportunities will always exist domestically, but it’s the global market that holds the most promise.
By 2050, the planet’s rapidly growing population will likely total around 9 billion people who will consume 73 percent more animal protein than they do today, estimates a new study from the Food and Agriculture Organization of the United Nations, “World Livestock 2011”. Fueling this trend, particularly in developing countries, are increasing populations plus middle-income growth.
But the road to export success is paved with many pitfalls, including tough foreign competition, trade bans and tariffs, political unrest, animal diseases and catastrophic weather events, just to mention a few.
Despite these challenges, US industry remains on an export roll. Tyson Foods sees exports trending strongly. “With strong exports, domestic availability of proteins should decline again in 2012 for the sixth year in a row, from its peak of 284 lbs. per capita in 2006 to about 255 lbs. per capita in 2012,” said Donnie Smith, Tyson Foods president and CEO, during the company’s recent 4Q call with analysts.
“According to the USDA, beef domestic availability will be about 6 percent lower in 2012 compared to 2011. Chicken is expected to be down over 3 percent and pork should be up less than 1 percent and turkey up just over 1 percent,” Smith added. “In total, meat and poultry [domestic] availability is projected to be down 2.1 percent in 2012, which should lead to higher protein prices.”
Robust beef exports
Last year’s US beef exports remained robust through the end of 2011, stated a recent Livestock, Dairy and Poultry Outlook from the US Dept. of Agriculture Economic Research Service. Twenty-one percent growth was expected for 2011 – US beef exports were forecast to total 2.78 billion lbs. Increased demand for US beef as disposable incomes of global consumers increased; a worldwide, multi-year decline in total US cattle inventories and beef production; more foreign countries purchasing US beef; and a favorable exchange rate with a relatively weaker US dollar drove the strong export market last year.
Through October, the largest US beef export increases were from South Korea, up 45 percent; Japan, 31 percent; and Canada, 33 percent. Along with Mexico, which was up 1 percent, these countries were the largest importers of US beef, totaling almost two-thirds of the total US beef exported through October. Exports to Hong Kong, up 41 percent; Egypt, 23 percent; and Russia, 85 percent, increased greatly. Combined, these seven countries imported more than 80 percent of total US beef exports during that timeframe.
With US beef production predicted to slip 5 percent this year, exportable beef supplies will be squeezed in 2012. But the strength seen in the export market is expected to continue this year and exports are predicted to be about even with 2011’s levels.
The recovery of US market share in Japan and South Korea is building as customers remember the high quality and value of grain-fed US beef, says Philip Seng, president and CEO of the US Meat Export Federation.
“Outside of these markets, we continue to set records as the US has benefited from growing demand for beef in countries unable to increase their domestic production – Hong Kong/China, Russia and Middle East are among the most notable,” he adds.
Big-demand, US beef items for Asian markets include short ribs, chuck rolls, short plates, briskets, rib fingers, chuck short ribs, various offal items and some middle meats. Beef exports to Russia, Mexico and the Middle East are mostly rounds, knuckles, skirts, shoulder clods and other items for processing.
Aggressive international competition will be the top challenge for US beef and pork exports this year. Consider that South Korea imports beef from 11 countries, 17 countries export beef to Japan and Hong Kong imports beef from 64 nations.
“We expect the trend to continue of where we export a greater percent of production, leaving less for consumption on the US market, as foreign consumers outbid the US,” Seng says.
Japan, Korea, Hong Kong/China, Russia and the Middle East are most promising for US beef exports in 2012, Seng says. The US continues regaining market share in Japan. This trend is expected to continue, especially as the yen remains strong and if US beef gains greater access. US beef is also regaining market share in South Korea. As demand for imported beef remains strong, US beef should soon have a 2.7 percent price advantage vs. Australia when the KORUS (US-Korea Free-Trade Agreement) is implemented.
There is a growing market in the Greater China region, which has a preference for grain-fed US beef, strong economic growth and minimal currency fluctuations. Significant growth will happen if access to China is available, Seng says. Regarding Russia’s World Trade Organization accession, if proposed tariff-rate quotas (TRQs) are implemented this could mean larger volumes for US beef.
In the Middle East, strong growth to Egypt, UAE and Saudi Arabia are likely to continue, Seng says.
Booming pork exports
USDA statistics compiled by USMEF from January-October 2011 shows 4.02 billion lbs. of US pork worth $4.93 billion was exported during that time. US pork exports were poised to exceed $5 billion in export value for first time in history.
The US pork industry anticipates continued export growth in 2012, but likely not as high of a percentage as 2011, due to circumstances last year, such as disease outbreaks and natural disasters, says Becca Hendricks, assistant vice president of international marketing, National Pork Board.
Depending on the implementation periods of the US’s three new free-trade agreements with Colombia, South Korea and Panama (as well as eliminating some sanitary/phyto sanitary and technical trade barriers in these and other markets), the US pork industry anticipates great opportunities with those countries. Growth in China should also occur, she adds.
US pork products typically exported to the industry’s top-five markets include:
• Mexico – Hams, picnics, butts, skins, trim and feet.
• Japan – Loins, picnics, butts, bellies, back ribs, tenderloins, jowls, rectum, tongue and intestine.
• South Korea – Butts, single-rib bellies, collar butts, picnics, spareribs, neck bones, backbones and variety meats.
• China – Butts, loins, ribs and variety meats.
• Canada – Split carcasses, loins, hams and processed meats.
Major trends driving US pork exports include hog disease in other countries, costs and increasing global consumption and middle-class incomes, Hendricks says.
“The US is the low-cost and efficient producer with high pigs per sow and feed efficiencies,” she says.
Due to global population increases and other countries’ inability to be self-sufficient, the US pork industry is expected to increase exports – which totals around 33 percent of the world’s market share today, Hendricks says.
The biggest challenges facing US pork exports this year include feed efficiency and availability, input costs, animal activists, trade barriers, trade policies, non-technical trade restrictions, political shifts, economic instability, shipping and transportation logistics, vulnerability to foreign animal disease and the threat of terrorism, she adds.
Competitive prices on the global market, even at the record price levels seen last year, are driving demand for US pork, says USMEF’s Seng. “Pork is also a relatively affordable, high-quality protein and is preferred by consumers in many of our markets,” he says.
US industry can export large volumes of preferred pork cuts consistently throughout the year to Japan, as well as high-value chilled pork. It can also meet demand for frozen processing items in Japan, Russia and China.
Mexico and Canada are large chilled pork markets, where the US benefits from proximity and the North American Free-Trade Agreement, especially now that Mexico has removed the retaliatory trucking duties from bone-in hams and shoulders, Seng says.
Once implemented, The KORUS FTA will be favorable for US pork. “But we expect a bit of a slowdown or possibly steady exports in 2012 after the record volumes exported in 2011 as the South Korean industry has been rapidly rebuilding,” Seng says.
Last year provided a strong foundation for US pork to South Korea at a higher level, and the FTA will help the US expand its leading market share, as duties of 25 percent on the most commonly exported US pork items for South Korea will be reduced to 16 percent upon implementation sometime early this year.
Increasing international competition will be a major challenge for US pork exports this year. Consider that South Korea imports pork from 23 nations, , while Hong Kong buys from 69.
Countries holding the most promise for US pork exports this year include Japan and Mexico, which have provided continued steady growth in top export markets; Central and South America, which also have provided continued steady growth with the additional benefit of newly implemented Colombia and Panama FTAs; and Russia, due to the pending implementation of WTO accession-agreed TRQs.
Chicken exports soar
US chicken exports are flying high. From January to October 2010, US broiler part exports totaled 2,604,230 metric tons; whole chickens, 113,306 metric tons; and prepared chicken and sausages, 63,102 metric tons. From January through October 2011, these totals were 2,756,465 metric tons, 152,173 metric tons and 69,345 metric tons, respectively, according to the National Chicken Council.
US chicken parts from January through October 2011 were up 6 percent on quantity, but 18 percent on value. With the increase of 18 percent in value, the US is getting more per lb. than it did a year ago, says Bill Roenigk, NCC senior vice president. “The question for 2012 is [chicken leg quarter] prices are likely to move up, but how much?” he asks. “And how much push-back will there be from countries that are importing our leg quarters? We can find some reason for optimism that even higher prices will not severely cause US chicken leg quarters to slip this year.”
One disadvantage the US has on whole-bird exports is global consumers prefer a smaller, whole-carcass bird and US chicken tends to be larger sized, Roenigk says. But those markets can take a bigger chicken and have been able to do that – and it helps growth, he adds.
US chicken export demand is climbing due to the growing middle class in many countries, such as China and South Korea. NCC and industry are working with the US government to launch an initiative with the government of India, which also has a growing middle class, Roenigk says.
Some feel the US should invest in exporting more prepared products, such as chicken nuggets or prepared entrées. While there is some growth there, it is not the big-ticket item, and it is not where the tonnage is, he adds. After 2012, industry will see further-processed products begin to grow, he predicts.
Global chicken and turkey consumption is increasing, particularly in some of the largest consuming countries, such as China and Mexico, along with developing countries, such as Vietnam and countries in Africa, says Toby Moore, vice president of communications, USA Poultry & Egg Export Council. Poultry is the best value among livestock meat proteins, with a feed conversion of 2:1, compared to 3:1 for pork and 6:1 for feedlot beef, he adds.
Poultry is the only meat protein with no religion-based consumption restrictions, as long as birds are slaughtered in accordance with religious requirements, Moore says. Price is a driver. US poultry, particularly chicken, currently has a cost advantage over all other producers, including Brazil, which is the chief competitor to the US.
The biggest challenge for US chicken exports is getting a favorable outcome on the US industry’s anti-dumping cases in China, Mexico and South Africa, as China and Mexico are very important export markets.
US industry is hopeful it can maintain its disease-free status to avoid import restrictions, he says.
“We hope Congress repeals the Jackson-Vanik amendment, and grants Permanent Normal Trade Relations [PNTR] to Russia,” he adds. “Russia will accede to the WTO early this year and if PNTR for Russia is not granted, this means that Russia is not obliged to abide by WTO rules when trading with the US,” Moore says.
Turkey exports increasing
US turkey exports, especially turkey parts and dark meat products, are an increasingly important aspect of US turkey production, says Adrienne Richards, public relations manager, National Turkey Federation.
In 2010, 583 million lbs. of turkey (including whole birds and parts) were exported. Mexico continues to be the number-one export market for turkey meat. “Exports now comprise more than 10 percent of total turkey production, compared with 1.2 percent in 1990,” Richards says. “With domestic turkey consumption relatively flat during the last decade, a significant amount of our business growth will continue to be overseas.”
Nevertheless, US domestic and global turkey demand is still outstripping supply, says USAPEEC’s Moore. Demand for ground turkey in further processing domestically has taken product away from the export channels, causing shortages of supplies for meat processing, he adds. Global demand is also increasing dramatically for turkey breast meat.
Balancing supply and demand will remain a challenge, particularly with rising domestic and export demand for products such as ground thigh trim pushing prices higher.
“As for exports, the turkey industry has much room to grow in the global marketplace,” Moore concludes.