Inflation, Shipping Struggles And Zero-Covid Policy: All Challenges U.S. Meat Exports Seem To Be Shaking Off

Higher prices at the grocery store don’t seem to be causing consumers to veer away from the meat counter. Robust meat demand abroad is also setting sail.

“Demand in the post-COVID environment in a lot of the world, not all of the world, but a lot of it, is very resilient,” says Dan Halstrom, CEO of U.S. Meat Export Federation (USMEF). “It is rebounding and rebounding with gusto, so to speak.”

The U.S. is home to beef production that ranks first in the world, followed by Brazil, China, the EU and India. When it comes to the quantity of beef exports, Brazil holds the top spot.

“Brazil is the largest beef exporting country by quite an amount in recent years,” says Derrell Peel, Extension livestock specialist with Oklahoma State University. “The second tier would be the U.S., India and Australia, and they export at about 60% of the level that Brazil does.”

While still not the top global exporter, U.S. beef exports exploded in 2021, reaching a new record. 2021’s beef exports topped the previous record set in 2018, and USMEF says the competition wasn’t even close, as the historic beef-export pace was thanks to explosive growth in multiple markets.

“It was Korea, it was Japan, it was Central America, South America, the list goes on,” says Halstrom. “And as we start out this year, the first two months of 2022, it's really a lot of the same.”

U.S. Beef Exports Explode 

USDA’s meat export data, which is compiled by USMEF each month, revealed beef exports in February climbed another 5 percent compared to last year and shot up 35 percent in value.

“On the beef side, you have to talk about China, and what's going on with a $2 billion market for China,” Halstrom adds.  

“China/Hong Kong have grown tremendously in recent years, by far the largest beef importing country now followed by the U.S.,” says Peel.

Phase One Agreement's Impact on Demand 

USMEF says since the U.S. gained meaningful access to China in early 2020 through the Phase One Economic and Trade Agreement, beef exports to China and Hong Kong have continued to climb. February’s data shows  January and February exports to the region shot up 56% in volume compared to a year ago and 87% in value. While robust, it actually trails the pace U.S. exports saw to China/Hong Kong in the second half of last year by 11%, largely due to current Covid restrictions. 

“China is very much in the middle of a zero-Covid policy, where we have staff that can't leave their apartment buildings, let alone go into the office. And this is not just unique to us. This is throughout most of China,” says Halstrom.  

In March, an increase in Covid cases sent Shanghai into lockdown mode. As the area upholds the policy of zero-Covid, it’s having a damaging impact on citizens who can’t leave their homes.  Reports show Shanghai is now facing food shortages due to businesses shuttering and supply chains severely hampered  by the lockdowns.

“What's this doing to demand? It's definitely changing demand,” says Halstrom. “The food service sector is getting absolutely hammered in China.”

Even with the lockdowns today, demand for beef in China is expected to rebound.

“We continue to see strength in terms of U.S. beef exports to China, and I think that's been helpful to cattle prices and beef prices," says Scott Brown, University of Missouri livestock economist. “I think there's still a possibility for further growth as we look ahead on that front.”

China Loses Appetite for Pork

Demand for U.S. beef may be strong, but the pork side holds a different story in China. The export data shows pork shipments have softened to China, the world’s top pork consumer.  However, the change in export pace doesn’t come as a surprise.

“They're coming off some rebuilding on a pork herd in China, so the numbers are down as we expected,” says Halstrom.

The February data shows total pork exports fell 17% compared to a year ago. USMEF says it’s a multitude of factors impacting demand. First, demand for U.S. pork struggled due to logistics, but it’s also from other countries who typically ship to China that are seeing demand also wane. As a result, they are shipping pork to other countries, which means lower-priced products are adding more competition on the world stage.  

“China matters a lot in this discussion,” says Brown. “U.S. pork exports to China, if we look back to 2020, all the strength we saw with a billion-pound increase in pork exports, was due in large part to China. When you look at 2021, the billion-pound decline is due in large part to China.”

Mexico Is A Bright Spot 

While China has been a dim spot for exports, Mexico has been a bright spot. After a record year in 2021, USMEF says Mexico is continuing that momentum in 2022. Pork exports through February to Mexico surged 30% compared to last year.  

“Thus far, we've seen Mexico actually helping offset the decline in pork exports to China,” says Brown.

“The good news on the pork side is that, you know, we're in this diversification mode as an industry trying to maximize the demand to as many markets as possible,” says Halstrom. “We're not relying only on China for the pork side, and the whole goal here is to try to maximize demand to as many markets as possible. I think it’s a strategy has worked very well.”

Pork may be down from historic levels, as beef exports continue on the record pace. But Halstrom says both sectors are proving to be resilient as headwinds continue.

“We have inflation around the world starting to go up,” he says. “Inputs are higher, petroleum prices, fuel prices, corn prices, soybean prices, the list goes on and on. The U.S. dollar is pretty strong versus some of the Asian currencies.”

Exports Remain Resilient 

Economists point out all of these factors mean exporting product overseas costs more, and the fact it hasn’t caused shipments to completely derail speaks to the hunger for proteins world-wide.

"Right now, we're in an era of a lot of uncertainty, volatility in general on a global scale, just with all of the geopolitical things going on, and trade has not been dramatically impacted by that,” says Peel.

While exports are strong and remain at record and near record levels, it’s happening despite shipping challenges. 

“Without a doubt, these numbers would be better if we had a supply chain that was, quote, unquote, normal,” says Halstrom.

The shipping issues are having the largest impact on Asia. Without those hurdles, Halstrom is confident exports to Asia would be even higher today.

“We have a lot of info showing that especially frozen shipments to Japan, Korea and China are being delayed, so yes, the numbers would be even better,” says Halstrom.  

The caution flags are high, but USMEF is impressed with where overall meat exports sit so far this year. Halstrom points out even with shipping struggles, export demand hasn’t been sent on a detour yet.

“It means there's a lot of headwinds, but does it mean at some point it probably will slow down demand? My guess would be yes, it probably will. Have we seen it yet? I guess my answer right now is no,” says Halstrom.

Peel thinks even with the potential for China to come in and swoop up more beef once lockdowns ease, he thinks beef exports won’t set a record again this year.

“The exports have been an important part of our beef demand in 2021. Beef exports were at a record level; they'll probably drop back a little bit this year, although they're up in the first part of the year. They'll probably moderate a little bit as we go through the year, but we're still going to be at a historically high level,” says Peel.

 

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