Asian Beef Binge Doubling U.S. Market Share: Freight Markets

Asian Beef Binge Doubling U.S. Market Share
A shopper looks at packaged meat at Hanaro Mart in Seoul. South Korea is the biggest buyer of U.S. beef and sales more than doubled in the first four months after a livestock disease curbed domestic supply. Photographer: Jean Chung/Bloomberg

The U.S. may ship the most beef ever in 2011, after doubling its share of the world market in four years, as demand from Asia revives a $3.84 billion export industry decimated by mad-cow disease.

Shipments will jump 17 percent to 2.68 billion pounds (1.22 million metric tons) this year, exceeding the previous record set in 2003, according to Centennial, Colorado-based CattleFax, which has researched the industry for four decades. Global trade in refrigerated meat, including overland shipments, expanded 2 percent to 31 million tons last year, Clarkson Research Services Ltd., a unit of the world’s largest shipbroker, estimates.

The sales surge is part of an agriculture boom that will generate record income of $94.7 billion this year as American farmers fill supply gaps left by droughts and floods ruining crops, the U.S. government estimates. Consumers in the U.S. faced the highest ever retail prices for beef in the first four months and costs will rise as much as 8 percent this year, more than any major food group, the government says.

“We wouldn’t have had the record-high prices without the very robust export markets,” said Jim Robb, the director of the Livestock Marketing Information Center, a Denver-based research company funded by universities, the industry and government. “In some cases, rather lackluster growth in domestic consumption is being made up for in these export markets.”

South Korea is the biggest buyer of U.S. beef and sales more than doubled in the first four months after a livestock disease curbed domestic supply. The Asian nation’s total imports this year will be the highest since 2003, the U.S. Department of Agriculture estimates. South Korea reported 89 outbreaks of the foot-and-mouth virus since January 2010, data from the World Organisation for Animal Health show.

Beef Exports

The revival of U.S. beef exports signals the industry has recovered from the damage caused by an outbreak of bovine spongiform encephalopathy, which was first discovered in the U.S. herd in December 2003. Shipments plunged 82 percent to 460.3 million pounds the following year, government data show. The brain-wasting disease was found in three U.S. cows, the last of them in 2006. The U.K. found more than 184,000 cases since 1987, according to the World Organisation for Animal Health.

Until the mid-1990s, most refrigerated goods were carried on ships called reefers, which use on-board power generators and typically sail faster than most other cargo vessels.

The trade is now dominated by container ships with slots set aside for refrigerated steel boxes. By the beginning of 2010, container ships could carry 9.5 times more refrigerated cargo than the reefer fleet, according to a report from the United Nations Conference on Trade and Development.

Container Rates

About 90 percent of global trade moves by sea, according to the Round Table of International Shipping Associations.

An index for six types of container rates from the Hamburg Shipbrokers’ Association jumped 190 percent since bottoming in November 2009 as world trade rebounded after the worst global recession since World War II. That contrasts with rates for dry bulk carriers, hauling coal, iron ore and grain, which slumped in five of the past seven quarters because of a glut of ships, data from the Baltic Exchange show. The London-based bourse publishes daily rates for more than 50 maritime routes.

Increasing competition from container liners drove down rates for reefers and idled ships, according to Simon Stevens, the London-based chief executive officer of Star Reefers Inc., which operates 46 such vessels.

The global reefer fleet was last at 521 vessels, compared with more than 600 six years ago, data from Redhill, England-based IHS Fairplay show. By contrast the container fleet expanded almost 50 percent to 4,760 vessels, the data show.

Middle Class

Demand for U.S. beef is being driven by the expansion of the middle class in Asia, said Bill Donald, the president of the National Cattlemen’s Beef Association and the owner of a ranch in Montana. The sales boost income for farmers because Asian consumers are prepared to pay more for cuts shunned domestically. Tongue sells for about $9 a pound in Asia and about $1 in the U.S., Donald said.

The premium paid by overseas buyers is helping farmers stay profitable as feed and energy costs surge, said Erin Daley Borror, an economist at the U.S. Meat Export Federation in Denver. Corn traded in Chicago, a global benchmark, advanced 74 percent in the past 12 months while crude oil jumped 15 percent on the New York Mercantile Exchange.

Higher costs spurred farmers to cull cattle, shrinking the national herd by the start of 2011 to the smallest since 1958, data from the U.S. Department of Agriculture show. Retail-beef supply per person will drop to its lowest since at least 1955 this year, the Livestock Marketing Information Center estimates.

Retail Prices

Retail prices for beef will rise further in the fourth quarter and into next year, said Karl Skold, an economist and the former head of commodity procurement for Omaha, Nebraska-based ConAgra Foods Inc. Supply tightened in the first four months of 2011 as shipments surged 31 percent.

“As these supplies get tighter, we’re going to have to bid more to keep it at home,” said Brett Stuart, a co-founder of Global AgriTrends, a research company in Denver. “We’re not bidding against ourselves. We’re bidding against Japanese and Korean consumers whose domestic prices are much higher.”

U.S. food prices may increase as much as 4 percent this year, the most since 2008, according to the government. World food costs rose 25 percent in 2010 and reached a record in February, an index of 55 commodities compiled by the United Nations’ Food and Agriculture Organization shows.

Fast-Food Outlets

The U.S. share of the global beef export market rose to 14 percent last year, according to the USDA, which is forecasting a 13 percent increase in exports to 2.593 billion pounds for 2011. At the same time, the U.S. is importing less Australian beef, used mainly in hamburgers sold at fast-food outlets, said Stuart of Global AgriTrends. The Australian dollar climbed 19 percent against the U.S. currency in the past year.

The Dollar Index, a gauge against the currencies of six major trading partners, fell 12 percent in the past year, decreasing costs for countries buying U.S. goods. The U.S. imported less meat than it sold overseas for the first time since at least the 1980s, according to Stuart.

Mexico and Canada are the biggest buyers of U.S. beef after South Korea. Of the total U.S. exports, 62 percent were shipped overseas in 2010, the U.S. Meat Export Federation estimates.

Cattle futures reached a record $1.21625 a pound on April 4 on the Chicago Mercantile Exchange. Prices are up 25 percent in the past year. On April 5, wholesale beef sold by processors reached $1.9196, the highest since at least 2004.

Economic Benefit

Cattle feeding is a $7 billion business in the region covering Texas, Oklahoma and New Mexico, which accounts for about 30 percent of the U.S. industry, according to the Texas Cattle Feeders Association. The total economic benefit to the area is $19 billion and in Texas alone accounts for about 25,000 jobs, according to the association.

Every $1 billion of beef exports creates 12,700 jobs, according to a 2010 study by the American Meat Institute in Washington.

“It is highly likely that a significant part of the additional income will be routed through to pay higher rents on the land, more equipment, machinery, pick-ups, and that type of activity,” said Neil Harl, an agricultural economist and emeritus professor at Iowa State University in Ames. “It does have a positive impact on local communities where meat production is taking place.”