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Monday, September 1, 2014

The value of the export market

by Kerry Halladay, Associate Editor

Things like Mandatory Country of Origin Labeling and the fussy details of various countries’ phyto-sanitary requirements frequently spur the question: What’s the value of trade?

In the case of beef exports, about $300 a head. On a slaughter-weight Choice fed steer today, that’s about 15 percent of its sale price.

Export market data from the U.S. Meat Export Federation (USMEF) and slaughter population data from USDA show that the value, volume, and value proportion of the export market to the overall domestic market has grown over the years.

Erin Borror, USMEF Economist, confirmed, pointing out that export value and volume records were set recently. In 2011, U.S. beef exports hit a record-high volume at 2.84 billion pounds, and 2013 set the record-high beef export value at $6.16 billion. That record may yet be eclipsed by this year’s beef export value.

But what does that mean on a smaller, more intimate scale?

In 2011, with its record export volume, roughly 108.1 lbs. of each fed steer or heifer was going to the export market. During last year with its record export value, roughly $244.95 of the sale of a fed animal came from export market demand. These numbers come from dividing the pounds of beef (muscle cuts plus variety meat) exported—or the value of those exports—in a given year divided by the number of head of steers and heifers slaughtered in that year.

“If we use that simple metric for the first half of this year, it’s $268 a head, and that’s up about $33 from last year and up about $116 from 2010,” calculated Borror, speaking of the per-head value of a fed animal attributable to export demand.

“This only includes the muscle cuts and variety meats— so everything we’re actively marketing overseas at US- MEF. It doesn’t include hides. If you include hides, you get over $300 per head.”

See Table 1 for the recent growth in the pounds and value per-head for a fed steer or heifer that is attributable to the export market. Remember that the recession struck in the 2008-2009 area and had a global impact.

The proportion of a fed animal’s value that is attributable to the export market has similarly grown over the last few years. See Table 2. For example, in 2007 the average Choice fed steer was bringing about $1,171 a head, according to USDA data. For that year, an estimated $95.19 came from export sales, making 8 percent of the steer’s sale price coming from the export market. Fast forward to 2013— the last year with complete data—and $244.95 of the average Choice fed steer’s sales price of $1,658 came from the export market; 14.77 percent.

WLJ asked Borror a question regarding a ridiculous scenario: What would happen to the U.S. cattle market if the export market suddenly and completely disappeared?

“If you think of eliminating a major customer, accounting for more than 12 percent of our muscle cuts, you can imagine there’d be a serious drop in beef prices and thus what packers are able to pay for cattle,” she said.

“You’d have to redistribute 12 percent of that muscle cut volume back into the U.S. market and a lot of the variety meat production as well.

Obviously a huge chunk of that production is going overseas, and at a higher price than it would if it ended up in our market.”

While all exports drying up completely—going from $6 billion to $0 overnight—is an unrealistic situation, the U.S. cattle and beef industry did see the real-world version of that following the late 2003 discovery of Bovine Spongiform Encephalopathy.

The tightening supply of cattle at home and the subsequent increase in prices has not yet deterred the export market. Prices are high (and getting higher) at home and abroad, but things are higher out there to begin with.

“In the international realm, U.S. beef is still seen as affordable, high quality product,” noted Borror. “If we compare Waygu carcass prices in Japan and Hanwu in Korea at about $7.50 per pound, then the Choice cutout at about $2.50 per pound doesn’t look so crazy.”

Borror also pointed out that, despite prices and some price disadvantages compared to competing beef exporters—Australia, New Zealand, South America— the U.S. has a niche. The U.S. is both the dominant exporter of grain-fed beef, as well as being able to ship large volumes of specific cuts preferred by certain markets. As such, they are important to the overall beef and cattle industry.

“It’s critical to keep our global customers at the table if we want to rebuild this industry.”

Valuing variety

The importance of variety meats to the export market— and thereby the overall value of U.S. cattle—cannot be overstated.

“Really, the only way the packers are paying their bills is from export of variety meats and also hides and tallow and everything else that’s not in the cutout. That’s paying the bills,” Borror said.

She pointed out that the packers would not export beef unless it made more money to sell it overseas, and that is certainly the case for variety meats. Borror estimated that at least half of the U.S.-produced variety meats are exported, though she explained that the estimates are based on older information and it is hard to track exact offal production numbers given the details of reporting requirements and condemnation rates among other things.

“There is some consumption [of beef offal], especially in the [domestic] ethnic markets, and especially of the ‘red offal’—tongues, livers, hearts—but it’s really hard to calculate production, let alone consumption,” she said.

In 2013, exports of beef variety meat alone stood at 696.05 million pounds valued at $729.66 million.

“Today, when we’re in such a tight supply situation where packers have to pay record high prices for cattle, if you lose those export markets and customers that are often willing to pay premiums for U.S. beef, that would have a serious detrimental impact on the industry.” — Kerry Halladay, WLJ Editor

 
 


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