By Gavin Maguire
CHICAGO, Dec 6 – The recent climb in the share price of U.S. meat processor Tyson Foods Inc to all-time highs suggests the future looks bright for those firms engaged in meat production. And certainly the prospect of record supplies of feed grains in 2014 seems to bode well for those reliant on grain as a key input.
But a recent slowdown in import demand from top emerging market countries is a cause for concern for U.S. exporters. Emerging markets account for more than half of all U.S. pork exports and around 40 percent of U.S. poultry shipments, so any further contraction in demand from those economies may potentially lead to a surplus of meat supplies at home in 2014.
Read Also
China soybean imports hit record June high on strong Brazil shipments
China’s soybean imports hit the highest level ever for the month of June, a Reuters calculation of customs data showed on Monday, driven by a surge in shipments from top supplier Brazil.
HEAVY DEPENDENCE
Emerging markets have been the primary driver of export growth for U.S. meat products over the past 20 years, expanding by close to 1,300 percent since 1990 from around 230,000 tonnes to an estimated 3.28 million tonnes in 2013. This compares to growth of around 500 percent for total U.S. meat exports over the same period.
The share of U.S. meat shipments to emerging market nations has more than doubled since 1990 from roughly 19 percent to more than 44 percent in 2013, and reveals how reliant U.S. meat manufacturers have become on increasing consumption of protein within nations such as China, Mexico and South Korea.
The poultry industry has been the biggest beneficiary of this acceleration in overseas demand, with the share of U.S. poultry shipments to emerging market nations climbing from less than 12 percent of total trade in 1990 to a record of more than 40 percent recently. In tonnage terms, U.S. poultry shipments to emerging markets are seen topping 1.54 million tonnes in 2013, compared to around 550,000 in 2000 and less than 75,000 in 1990.
U.S. pork producers have also seen sharp increases in export demand, but have only recently seen the share of shipments to emerging economies climb back to early 1990s levels thanks to greater production in several developing markets, especially China.
Beef exporters have the least exposure to emerging market tastes, having failed to regenerate broad global demand following the 2004 outbreak of “mad cow” disease in the United States. The sharply higher price of beef relative to chicken and pork has also muted interest in the meat in emerging markets.
Still, it is clear that the U.S. meat production industry as a whole has developed a strong dependence on demand from emerging markets, and now looks set to encounter potentially stiff headwinds in international trade should the pace of purchasing from these countries drop off.
MUCH AT STAKE
While domestic consumption still accounts for a majority share of total demand for U.S. meat products, exports have become an increasingly important demand driver for many poultry, pork and beef manufacturers.
This is mainly because U.S. meat consumption has actually contracted slightly over the past five years or so as the U.S. population adjusts its diet to incorporate fewer servings of meat per day.
In comparison, world consumption of meat has climbed by close to 8 percent over the same period.
This bifurcation of demand growth between domestic and overseas markets has ensured that all the top global meat producers have taken steps to make inroads into developing and emerging markets, and is why the recent apparent slowdown in demand growth in key markets is such cause for alarm.
Of the top five destinations for U.S. poultry, pork and beef products, three are categorized as emerging market nations by the U.S. Department of Agriculture – China, Mexico and South Korea.
Further, while there has been steady export interest for U.S. meat products generally this year, each of those top emerging market nations has shown a clear slowdown in import demand growth over the past few months.
That softening trend has been somewhat disguised so far by the broadly steady tone of U.S. meat shipments in general.
But when viewed on a seasonal basis, it is clear that U.S. pork and poultry shipments to the United States’ top three emerging markets are not only falling behind the export pace seen a year ago, but in the case of chicken have slipped well behind the past five-year average as well.
Only beef shipments have shown year-over-year gains in exports so far, but even that good news is offset by the notable contraction in demand from the top buyer of U.S. beef, Japan, and an almost complete cutoff in buying interest from Russia and Vietnam.
Should this trend in faltering demand from what had been the strongest markets for U.S. meat products continue, U.S. meat producers may find themselves struggling to accommodate any increases in production given the diminishing appetite for meat at home.
Clearly there is demand for meat in numerous other nations beyond China, Mexico and South Korea. But if those “Big 3” set the tone for other emerging markets and lead to a general slowdown in U.S. meat purchases, 2014 may not be quite as good a year for meat makers as current share price trajectories may suggest.
