These are heady days for those in the US red meat industry. For they have seen two consecutive years of record beef operating margins, far beyond what anyone could have imagined 10 years ago. One year ago, after a record 2018, the question was: Can it get better than this? Well, it did. Now the same question applies to 2020 and the answer is “yes.”
The reason for such optimism is summed up in two words – China and Japan. China’s ongoing efforts to fill its gaping protein hole due to the impact of African Swine Fever (ASF) means even greater demand for US pork and beef globally. US chicken exports will also benefit from more Chinese buying. Meanwhile, US beef and pork on Jan. 1 finally saw Japanese import tariffs reduced to those of its competitors. This will boost US red meat exports to Japan this year and well beyond.
Assuming that domestic demand remains at least as strong this year as it was in 2019 for all three major proteins, increased exports will largely offset a nearly 2 percent increase in total red meat and poultry production in the US this year. US Dept. of Agriculture (USDA) forecasts that total will be a record 1087.144 billion lbs., versus 105.298 billion lbs. in 2019. Broiler production will remain by far the largest of the three proteins at 45.250 billion lbs. (up 3.2 percent on 2019), while pork will be second at 28.680 billion lbs. (up 3.8 percent). Beef will be third at 27.515 billion lbs. (up 1.4 percent).
Exports on the rise
USDA also forecasts that US red meat and poultry exports will be up in volume and value this year versus 2019. Pork will see the biggest increase as demand from China boosts volumes, says USDA’s Economic Research Service. Pork will be the No. 1 protein exported at 7.100 billion lbs., versus 6.296 billion lbs. in 2019. Pork exports will be worth an estimated $6.7 billion (up from $5.518 billion in 2019). Broilers will be the No. 2 protein exported at 7.425 billion lbs., versus 7.040 billion lbs. in 2019. Exports will be worth an estimated $5.2 billion.
Beef will be the No. 3 protein exported at 3.305 billion lbs., versus 3.l04 billion lbs. in 2019. Beef exports will have the largest value at an estimated $7.6 billion (up from $7.281 billion in 2019). Beef and pork variety meat exports will be worth an estimated $1.7 billion, versus $1.562 billion in 2019, while hide, skin and fur exports will total an estimated $0.9 billion versus $1.1108 billion. All these estimates are for USDA’s fiscal year ended Sept. 30.
Livestock, poultry and dairy exports will thus total $31.9 billion as stronger demand for pork, dairy, hides and skins more than offsets declines for beef and poultry products, says USDA. They will make up 23 percent of total US agricultural exports in fiscal 2020, which USDA projects to be $139.0 billion. That is up $2.0 billion from its August forecast, driven by higher soybean, pork and dairy export forecasts, it says.
China’s desperate need for pork began showing in US pork export data in the middle of last year. Although still saddled by China’s retaliatory duties, October pork exports to the China/Hong Kong region reached 61,062 metric tons, up 150 percent year-over-year, while export value climbed 127 percent to $141.3 million, says the US Meat Export Federation (USMEF). For January through October, exports to China/Hong Kong were up 55 percent in volume (468,576 mt) and up 34 percent in value ($974.8 million). Exports to the region already exceeded the full-year totals of 2018.
China’s efforts to rebuild its domestic swine inventory, which has been hit hard by ASF, are gaining traction but there are still excellent opportunities for pork-supplying countries, said USMEF president and CEO Dan Halstrom in early December. As US-China trade talks continue, USMEF remains hopeful that access for US red meat in China will return to a level playing field with its competitors, he said.
The demand for beef imports from China will continue in 2020, which will support global prices through the upcoming year, according to Rabobank’s Beef Quarterly Q4 2019 report. Thanks to ASF causing pork prices to triple from October 2018 to October 2019, Chinese beef demand is expected to be extremely strong in the upcoming year. The shortage of pork has pushed consumers toward other proteins and the increase in pork prices has made beef a more relatively affordable option. In October 2018, the retail price of beef was 2.8 times higher than pork. One year later, it was only 0.6 times higher, according to the Rabobank report.
US beef still faces severe barriers to entry into China, as China prohibits beef produced with the use of growth promotants. But Australia, Brazil, New Zealand and Canada are all expected to increase their beef exports to China. This means demand for US beef will likely increase in other markets to make up shortfalls from those four countries.
This will be especially true in Japan, thanks to the US-Japan trade agreement, which will greatly improve access for US red meat in Japan. The agreement is one of the biggest developments in the history of the red meat trade, says USMEF. No international market delivers greater benefits to US farmers and ranchers and to the entire US supply chain than Japan, it says.
The US beef and pork industries look forward to expanded opportunities in Japan, which is already the largest value destination for US pork and beef exports (combined export value in 2018 was $3.7 billion), Halstrom says. With tariff rates mirroring those imposed on major competitors, USMEF’s forecast for 2020 is for US beef and pork exports to Japan to reach $2.3 billion and $1.7 billion, respectively. Export volumes are projected to be roughly 360,000 mt for beef and 410,000 mt for pork. Volume and value projections are based on reduced tariff rates being in place for the full year, according to USMEF.
USMEF projects that by 2025, US red meat exports to Japan will approach $5 billion, roughly $2.8 billion for beef and more than $2 billion for pork, as consumption of US red meat increases due to greater access for Japanese consumers and the US gaining market share. The agreement also opens new opportunities for value-added and processed red meat products, with tariffs on these products phasing to zero. This will contribute to the overall growth in US exports to the high-value Japanese market, USMEF says.
Major red meat and poultry companies like Tyson Foods, JBS USA and Cargill can thus expect to enjoy large profits again this year, with beef margins expected to hit record high levels for the third year in a row. Pork might also record large margins because of increased Chinese buying, while poultry margins are expected to rebound after several soft years. Faux meat sales might be hitting the headlines but the real thing continues to reward US red meat and poultry companies.