New money equals increased global demand for U.S. beef
January 15, 2014
With current export markets accounting for almost $300 per head, or 17 percent of a finished steer's value according to Commodity Markets Council President Gregg Doud, the international marketplace is not only worth mentioning, but worth understanding as a U.S. cattle rancher.
Doud provided a decade of international beef trade perspective during his presentation at the Range Beef Cow Symposium in Rapid City, S.D. on Dec. 3, highlighting changes and resulting impacts countries oceans away are having on prices in local U.S. markets.
"The new money in our industry is coming from the trade side of the equation. Our product is now global. That heifer you're going to retain will have calves, and the resulting meat will go to 70-80 different countries around the world," began Doud of the scope of the beef market today.
One major game-changer focuses on the recent obtainment of Japanese import levels equal to or above those seen prior to the 2003 "Cow that Stole Christmas," and the future potential utilization of a TPP (Trans-Pacific Trade Agreement) to further increase U.S. beef consumption within the country.
"What's the deal with TPP? Natural gas for beef. They want our natural gas, and by the way, when we do trade agreements, that's one issue always negotiated; to have access to natural gas. I think this will happen and is an enormous opportunity," stated Doud of the potential to negotiate a FTA with Japan, adding that he foresees completion occurring in the next one to three years, with the impact felt domestically in three to five years.
He continued, providing further insight into what TPP is, and how it works, both with Japan and the worldwide market as a whole.
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"Think of it (TPP) as a wagon wheel, through which we already have FTA's (Free Trade Agreements) with Chile, Mexico, Canada, South Korea and different countries all along the Pacific Rim, both in the Western Hemisphere and in Asia. What TPP does is take the wagon wheel and draw lines to every country and connect them all to our way of doing things in terms of Sanitary and Phytosanitary (SPS) issues. It's a hub and spoke mechanism where everybody is going to enjoy the same relationships in terms of trade that we negotiated bi-lateral with all these countries.
"When Japan joined this party it became a really big deal because this is really a back door FTA with the Japanese. That is a huge deal for us because that tariff is 38.5 percent – one of the biggest tariffs we face in the world, and one of our biggest customers. The ability to get the tariff to zero over time is an enormous thing for our industry," explained Doud of the TPP's possible impact on future Japanese beef imports.
The head-to-head battle for import shares to South Korea between the U.S. and Australia is another hot topic Doud noted is trending favorably toward the U.S. following successful negotiations to straight-line reduce South Korea's 40 percent tariff by 2.67 percent annually. Next year will mark the third year of implementation, putting the tariff on U.S. beef at 32 percent — 8 percent below all other countries exporting to South Korea.
"The fact that next year we'll have about an 8 percent drop on the Australians in Korea is enormous. It sounds like Meat & Livestock Australia will close their office in Korea after they spent millions in there when we were locked out due to BSE (Bovine Spongiform Encephalopathy). Next year could mean game over for the Australians in Korea due to this FTA," he explained.
The explosion of Greater China on the world beef trade radar screen has been another tremendous change over the last decade, resulting in a world leading market that shows no signs of slowing in coming years.
In his proceedings, Doud provided the following "mind-blowing" statistics on China's beef consumption:
• 1.5 billion pounds more beef is going to China/Hong Kong this year versus last year (To put this in perspective, Wal-Mart's beef sales domestically are a little over 2 billion pounds and total U.S. beef imports are about 2.2 billion pounds.)
• During the past two years, beef prices in China have increased 83 percent. Since January 2012, U.S. beef prices are up 16 percent.
• The retail price of beef in China is now $4.80 per pound. In the U.S. it is currently $4.95 per pound.
"This thing with beef in China is a game changer really because of one statistic. When we first started doing this about 10 years ago, the price the Chinese could afford was +/- $2 per pound. The fact that now that price is $4.80 per pound versus $4.95-$5 per pound in the U.S. tells me, in terms of cattle prices going forward, that we have a rock solid floor under this thing at $115-$120," noted Doud.
He continued with the statement that the last 10 years has seen the rebuilding of the U.S. beef export industry basically from scratch. Moving forward, Doud expects China to headline a possible increase to $8-$10 billion in annual exports, adding that the deciding factor will be the rancher's ability to produce, and not the challenge of finding a plate to put U.S. beef on.
"One of my favorite things to do each year is the annual selection of our replacement heifers. When the day comes to do this on each of your operations, take a minute to think about all the places the beef from the offspring of those heifers you're retaining may go in the coming years. It is a pretty amazing list. My advice to each of you is simply: go forth and multiply," concluded Doud of what can be done locally to help the U.S. remain a strong player in the international beef market. ❖