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U.S. beef trade outlook: The good, the bad, and the ugly

Brexit presents potential opportunity for the export markets, but there is also plenty of unknown in China. Here's a breakdown of the good, bad and ugly in the global protein outlook.

By Kindra Gordon

There are many moving parts to global marketing opportunities for beef. “There always is, but lately it’s really extreme,” expressed Brett Stuart as he addressed the International Trade Committee during the 2019 Cattle Industry Convention Feb. 1 in New Orleans. Stuart is co-founder of Global AgriTrends, a firm specializing in global analysis of market intelligence and trade data.

Stuart shared several observations on the trade scene, and noted they fall into three buckets – “the good, the bad and the ugly,” a moniker he borrowed from the 1960s Clint Eastwood film.

The good

Regarding production, Stuart acknowledged that beef production has increased significantly. As examples, since 2006, Brazil had added 10 million beef cows, and from 2015 through 2019 the U.S. cowherd has increased about 3 million head. Stuart notes that usually as production increases, price decreases. But the good news here is as production increased, “we’ve held prices together.”

He attributes that to Brazil consuming most of their domestic production and China absorbing a lot of the world’s beef production. “China buys $9 billion worth of beef per year. So we’ve had a major consumer come out of nowhere,” says Stuart as he explains the increasing wealth and appetite of their growing middle class.

As a regular traveler to China, Stuart shared that he recently observed a new and exciting beef trend – more grilled beef in China. He explains that traditionally, the Chinese boil beef for “hot pot” meals. He notes, “I’ve always said if the Chinese think they love beef when boiling it, wait until they start grilling it.” Stuart says beef jerky is also becoming increasingly popular in China.

Another good news story for beef during the past year is South Korea. The Trump administration renegotiated the United States-Korea Free Trade Agreement, also known as KORUS, with no changes made to America’s beef access to Korea. The original KORUS agreement negotiated under President Bush began the tariff phasedown, which is still in place.

Additionally, Stuart reported that Costco Korea made a switch to sourcing all fresh beef from the U.S. last year; previously they were using beef sourced from both the U.S. and Australia. This switch will add an additional 15,000 metric tons of beef trade per year, making Korea the second greatest export market for U.S. beef, representing $1.4 billion. Stuart notes there are increased opportunities for U.S. beef with Costco internationally as well.

Looking at 2019 and beyond, Stuart is optimistic for more beef growth in South Korea, and says, “I think we can keep this party going.” The tariff phasedown has gone from 40% to 18%, with the duty dropping by 2.6% each year and ultimately phasing to zero. Stuart concludes, “We’ve got the grain-fed beef they are looking for.” 

Beef & Brexit

It is yet to be determined if Brexit falls in the “good” column, but on March 29, 2019, the United Kingdom (UK) is set to leave the European Union (EU). While formal trade talks cannot begin until Brexit occurs, Gary Horlick, NCBA trade attorney says, “We need to get our government to recognize this is a priority and the importance of the potential market there.”

As the fifth largest economy in the world, the UK represents sizeable market potential for the United States. The UK imported $1.7 billion of beef in 2018, but the bulk (86%) of that came from other EU countries which offered non-hormone treated cattle (NHTC). Horlick notes that Ireland is currently the largest beef supplier to the UK, but all of their beef is grass-fed.

Currently, the EU has 52% tariffs on U.S. beef imports, and also imposes quota limits and has a ban on hormones. For other protein imports, they have restrictions on antibiotics and animal production standards.

Horlick acknowledges that if it’s an immediate Brexit on March 29, “you’ll see fast work on negotiating trade deals.” If it’s a “soft Brexit,” it could be a 21-month process, with no signed agreement until the 21 months are up.

Either way, he says U.S. beef exporters have to get to work. He acknowledges, “It’s not going to happen overnight. We’ll have to work the non-hormone barrier out.” Horlick adds, “There is no pickier country in the world about food than Japan, and even with the barriers and resistance we [the U.S.] sell $2 billion worth of beef in Japan. There’s no reason we can’t sell a lot of beef to the UK.”

The bad & ugly

Now, the bad news: While the market potential in China is promising and offers what some estimate could be a $4 billion market, Stuart called it “horribly unfortunate” that the U.S. beef industry still faces many export hurdles there. He cited the non-scientific residue restrictions and a zero tolerance policy on growth promotant residues, traceability requirements to the ranch of origin, 25% retaliation tariffs for a total 47% tariff, and individual plant approvals, instead of USDA system-wide approvals.

China’s leader Xi Jinping has set a March 1 deadline to reach a trade agreement with the U.S., and Stuart calls the negotiations “high stakes.”

Likewise, Stuart calls the 38.5% beef import duties being imposed on U.S. beef by Japan “bad news” especially with the Australian duties, which are currently 27.5% set to be reduced even more in April. Stuart says, “For 2019 it’s not as big of a problem because the drought in Australia will limit their beef supplies, but when they restock we [the U.S.] will feel it.”

Thus, Stuart says a bilateral trade agreement with Japan needs to be a top priority for the U.S. beef industry in 2019.

Regarding “the ugly,” Stuart points to African Swine Fever (ASF), which he calls, “the scariest swine disease on the planet.” The disease is highly transmissible, but not highly contagious (aerosolized); there is no vaccine; and mortality rate approaches 100%. He adds, “It’s a global black swan event looming for the global protein industry.”

Stuart reassures that there is no human health risk from the disease, but he explains that it is a big deal because in China – where the disease is rampantly occurring – it’s already potentially affected 10 million hogs. Even worse, China is home to half of the world’s hog supply, which represents 20% of the world’s protein supply.

Thus, this disease is going to impact global protein supplies. Moreover, the Chinese government is no longer reporting cases, which means further spreading of the disease is inevitable; it’s already been reported in Western Europe. “It’s completely out of control,” says Stuart, who notes that as of late January 2019, contacts in China told him the disease outbreak was “getting worse.”

Looking big picture, Stuart says, “If China loses 16% of their pork production, all of the exported pork in the world will not offset the loss of supply.” He speculates if China begins to aggressively import U.S. pork, that could put supply and demand pressure on pork, beef and poultry. Stuart says, “It will lift markets, but China does not produce enough chicken or beef to offset lower supplies.”

Stuart concludes, “This is sobering. If we can keep ASF out of the U.S., our fortunes change. If we have it, all bets are off.”

NAFTA 2.0

Last, but not least, many in the beef industry are waiting with bated breath to see what happens to the United States-Mexico-Canada Agreement (USMCA), which some have dubbed NAFTA 2.0. While the agreement has been signed by the leaders of the three countries, the next step is for Congress to ratify the agreement, which NCBA’s Kent Bacus expects is going to “be tough” with Nancy Pelosi (D-Calif.) as House Speaker.

Moreover, Bacus noted it’s a federal election year in Canada and many in Congress are gearing up for U.S. elections. He stated, “Ag will need to be stepping up for Congressional support and make it a priority.”

President Trump did make a call for swift Congressional approval of the U.S.-Mexico-Canada trade agreement during his Feb. 5 State of the Union Address.

Gordon is a freelance ag writer from Whitewood, S.D.

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