Some people claim exports aren’t vital to the U.S. beef industry. What nonsense.

The past 18 months have emphatically proved how valuable they are. Just as reduced export tonnage and revenues in 2009 depressed wholesale beef and live-cattle prices, significantly larger exports this year are doing the opposite. In fact, exports of both cuts and variety meats have been a key market driver for several months and will be the rest of the year.

That’s extremely important to cattle prices because domestic demand remains weak in the face of continued high unemployment and a sluggish economy. Domestic demand was down 1.7% in the second quarter vs. the same quarter last year, says analyst Andrew Gottschalk, HedgersEdge.com. But beef exports were up 21.7% in the quarter vs. last year. So overall demand in the quarter was up 8.3%, he says.

Export data the first seven months of the year is much improved over 2009. Total volume at 588,000 metric tons was up 15% and total value was up 25% at more than $2.9 billion. That’s where the big demand improvement shows up, more tonnage and even more sales dollars.

In addition, exports represented nearly 9% of total weekly beef sales during the first seven months. That’s well above the five-year average of 5% and even higher than 2003 pre-BSE levels.

It’s safe to assume that 2010 total exports could maintain that 9%. In early September, USDA forecast 2010 exports to be up 17% on 2009. But analysts regard this as too low. Exports seasonally tend to increase through year-end and a similar pattern is expected this year, Gottschalk says.

Exports to Asia are likely to continue to increase, according to exporters. Exports to Japan are up 25% in volume and value. South Korea is buying a lot more U.S. beef and is close behind Japan, our third-biggest export market after Mexico and Canada. Korea in the first seven months of 2010 took 63,189 metric tons of U.S. beef, worth $291 million, and up 122% and 162%, respectively, on 2009.

Remember when some Koreans protested violently in the streets of Seoul and disparaged the safety of U.S. beef? Well, exporters and the U.S. Meat Export Federation did a fantastic job in response and in repositioning U.S. beef initially at the foodservice level (hence all those short ribs going to restaurant chains). Another factor is that Koreans love beef, and their economy is the strongest in Asia. No wonder Koreans are buying more and more U.S. beef.

Conversely, beef imports are well down on last year (12% in the first seven months). That’s because Australian imports are down sharply, thanks largely to the strength of Australia’s dollar against the U.S. greenback. Australia’s imports from July 2009 to June 2010 fell 25% to 210,514 metric tons from the year before, the lowest to the U.S. since 1996-97.

From January to June 2010, Aussie shipments were down 40%. They picked up in July but are declining again on a year-on-year basis. Aussie imports for calendar 2010 are expected to be in the low 200,000 metric tons and might be eclipsed by imports from New Zealand.

All this has a big impact on total available beef supplies in the U.S. Beef production year to date is down 0.5%. With exports up and imports down, total supplies are tighter than expected. Second-quarter supplies were down 3.8% from the previous year; and perhaps even more in the third and fourth quarters.

USDA forecasts disappearance to be 59 lbs./person this year, vs. 61.1 in 2009, and 57.8 in 2011. This decline means wholesale beef prices will trend higher, raising cattle prices higher, as well. Who knows how high prices might go if export demand gets even stronger.

Steve Kay is editor and publisher of Cattle Buyers Weekly (www.cattle
buyersweekly.com). Catch his weekly market roundup at beefmagazine.com every Friday afternoon.