An Important Market for U.S. Beef and Pork

An Expert's View about Animal Husbandry and Support Services in Mexico

Posted on: 31 Mar 2012

Imports of beef and pork meat are forecast to remain strong through 2012 as domestic production is not sufficient for demand.

THIS REPORT CONTAINS ASSESSMENTS OF COMMODITY AND TRADE ISSUES MADE BY USDA STAFF AND NOT NECESSARILY STATEMENTS OF OFFICIAL U.S. GOVERNMENT POLICY Required Report - public distribution Date: 3/21/2012 GAIN Report Number: MX2016 Mexico Livestock and Products Semi-annual Mexico Remains an Important Market for U.S. Beef and Pork Approved By: Dan Berman Prepared By: Gabriel Hernandez and Adam Branson Report Highlights: Mexico?s cattle inventories are falling as non-sensitive cattle are slaughtered or being exported due to long-term drought that is affecting the industry and driving up feed prices. The swine industry continues doing well; however, as the pig crop is greater than previously forecast. Imports of beef and pork meat are forecast to remain strong through 2012 as domestic production is not sufficient for demand and as imported product appeals to various segments of the population. Executive Summary: Disclaimer: Data included in this report is not official USDA data. Official USDA data is available at: http://www.fas.usda.gov/psdonline Commodities: Animal Numbers, Cattle Meat, Beef and Veal Production: The Post 2012 Mexican beef production forecast is 1.83 million metric tons (MMT), carcass weight equivalent (CWE), slightly lower than the USDA forecast as cattle continue to be slaughtered at slightly lower weights than prior years. Since late 2011, northern Mexican cattle feeders have started slaughtering cattle, including feeder calves and dairy cattle as a measure to cope with an exceptional long-term drought affecting most of the country. The cattle industry has been struggling with strong international grain demand during the last half of 2011 which generated tighter feed supplies and higher production costs. Thus, to cope with the lack of forage cattle, feeders were compelled to partially liquidate herds during the last quarter of 2011. This was accomplished through the slaughtering of non- sensitive (not for breeding) cattle and the continued export of calves to the United States and more recently to Turkey. The development of Turkey as a new market destination for Mexican live cattle has raised concerns by the cattle feeders and packers as it could have a negative effect on meat production. During 2011, the export of calves to the United States, Turkey, and other established markets, reached 1.435 million head, slightly lower than the USDA estimate. Without a sharp, rapid and significant improvement in breeding to improve the efficiency of the calf crop, the export of calves could cause future limited availability of steers for slaughtering intended to supply the domestic beef market. Consumption: The Post 2012 beef consumption forecast anticipates consumption figures will be slightly lower than the USDA forecast. Beef prices are expected to increase as a result of tighter suppliers (i.e. increased Mexican beef exports and lower production volumes) and thus reduce domestic market demand in favor of other animal protein sources. Tighter supplies will affect lower-income households more than middle and upper income consumers (a smaller portion of the population) who will maintain or even be able to see a slight increase in their consumption levels. Middle and upper income consumers are reportedly increasing their purchases of imported beef as numerous news accounts have and government testing has found trace amounts of an unapproved compound in domestic product. As such, sources report they are altering consumption preferences and practices. The Post revised 2011 beef consumption estimate is MX2016 Mexico Remains an Important Market for U.S. Beef and Pork Page 2 increased from the USDA estimate due to increased purchasing power among all income groups and lower than anticipated exports. Traditionally, most low to medium income households consume beef cuts known as ?bistec? (muscle thin beefsteak). Demand for finer cuts is limited to upper-income consumers, a smaller segment of the population, and, as such, finer cuts are often available for export markets. Trade: The Post 2012 revised beef import forecast is 300,000 MT (CWE), which is higher than the USDA forecast. As indicated earlier, drought and increased Mexican beef exports are preventing the meat sector from keeping up with demand increases from specific sectors of the population. Moreover concerns regarding food quality and food safety have led middle and upper income consumers to purchase higher volumes of imported beef. During 2011, Mexican industry members made a concerted effort to diversify export market destinations. As such, industry sources report Mexico is exporting beef to a number of developing economies. Additionally, Mexico continued exporting beef products to Japan, the United States, Russia, and Korea. Mexico?s meat processors and traders expect that these markets will purchase greater volumes of Mexican beef during 2012. Specifically, there is strong industry belief that Mexico will be able to increase exports to Japan as negotiations for an expanded tariff-rate quota and a lower duty volume on its beef exports were concluded recently. Mexican industry is also optimistic on exporting greater volumes to the United States as trade sources indicate that the drought and cattle herd reduction experienced in the southern United States is encouraging more purchases of Mexican beef. Sources have stressed that the Mexican beef industry must develop added-value product exports to strengthen all aspects of the marketing chain. Sources indicate that this will allow producers to obtain greater profits. However, Mexico lacks sufficient grazing land for large herds and for animals closer to desirable market weights. As such, the export of live cattle is a trend that will likely continue for several years. Policy: On December 6, 2011, the Secretariat of Agriculture, Livestock, Rural Development, Fishery and Food (SAGARPA) National Service of Health, Food Safety, and Food Quality (SENASICA) Import and Export General Directorate announced that Mexico will only be accepting the latest version of the FSIS Letterhead Certificates that were agreed upon and included in various official communications with Post. If shipments are not accompanied with these new Letterhead Certificates they will likely be held up at the border until a new replacement certificate (also known as ?in lieu of? certificate) can be issued. The Letterhead Certificates have been posted on USDA?s FSIS Export Library and the Spanish requirements are posted on SENASICA?s website under the Modulo de Consulta de Requisitos Zoosanitarios para la Importacion (MCRZI). In order to support better herd management, SAGARPA is promoting a voluntary program called ?Reliable Provider Free of Clenbuterol?. Currently, SAGARPA offers producers delivering cattle to Tipo Inspeccion Federal (TIF) establishments a subsidy of 220 pesos (approximately U.S. $16.40) per MX2016 Mexico Remains an Important Market for U.S. Beef and Pork Page 3 animal under this program. SAGARPA aims to discourage producers from using ?-agonists during the last stages of cattle production as the substances are not approved for livestock use in Mexico. The use is considered illegal and can be detected in random sampling programs conducted at TIF facilities as well as municipal slaughter houses. Industry and government sources have declared that 97 percent of the domestic meat supply is safe for human consumption. Recently, Mexico removed beef feet and sweet breads from the list of banned U.S. products. However, a number of other products remain, including; ground beef, small intestines, weasand meat, and head meat. (NOTE: the additional market access for beef feet and sweet breads will not affect the Post or USDA Production, Supply, and Demand forecasts as these tables refer only to muscle meats and NOT variety meats nor offals). Currently, many producers sell their calves at an early growth stage. Private sources are jointly working with government authorities to implement a new program called ?Development of Suppliers?. The program offers training, financial support, and technical assistance to calf producers. Through this program producers would be eligible to obtain financing that should allow them to feed and sell animals at a higher weight and when they are ready for slaughter. Presumably, this should not affect forecasts as entities in the marketing channel were feeding out the animals. However, the policy change should allow greater producer returns and may provide added strength to rural agricultural production. Commodities: Animal Numbers, Swine Meat, Swine Production: The Post 2012 Mexican pork production forecast is 1.215 million metric tons (MMT), carcass weight equivalent (CWE), higher than the USDA forecast. This increase is driven by specific requirements from Mexican export markets, the incorporation of new breeding lines that are better able to adapt to the Mexican production system, and better farm management techniques. The Post 2011 pork production forecast has been increased slightly, as well, from the USDA estimate for the above mentioned reasons. Traditionally, Mexican producers supply live swine for slaughter at a weight of 105 kilograms for the purpose of ensuring leaner meat carcasses. Beginning in 2011 and in 2012, however, some slaughter operations producing swine for export are holding hogs until they reach 120 kilograms. Additionally, better genetics in the breeding swine population are producing more live animals per litter and have resulted in hog herds that are able to gain the desired market weight in less than 180 days, which is the Mexican industry average. The United States? recognition of Mexican States as free of classical swine fever (CSF) has been one of the key factors to opening foreign markets for Mexican pork. The new and additional market access that Mexico has gained and the demand for high quality pork products in Asian markets are other important factors that are encouraging higher production. MX2016 Mexico Remains an Important Market for U.S. Beef and Pork Page 4 Nevertheless, the exceptional drought, mentioned previously, is affecting pork production profitability, as higher feed grain prices have stressed production. As in other producing countries, animal feed for pork is based on yellow corn and sorghum. Some northern Mexico producers, however, are feeding their hogs with white corn or wheat (if available due to temporal surpluses during Mexico?s growing seasons). In Mexico, feed represents approximately 64 percent of the production cost. Consumption: The Post 2012 pork consumption forecast is higher than the USDA forecast as purchasing power gains and demand, specifically, for hams and picnic remains strong. These are generally inexpensive cuts that can be consumed as deli meat by middle and upper income consumers. Moreover middle income consumers (a smaller fraction of the population) are shifting consumption habits from poultry and beef back to pork. The Post 2011 consumption estimate has been revised lower than the USDA estimate as higher pork prices encouraged consumers to consume less expensive animal proteins. Trade: Mexico?s imports consist of hams and mechanically deboned meat (MDM) for the preparation of sausages, deli hams, and other cold cuts. The Post 2012 pork import forecast remains the same as the USDA forecast (650,000 MT CWE). The Post 2011 revised pork import estimate of 594,000 MT (CWE) is lower than the USDA estimate as higher international pork prices and competing international demand increased prices so that lower-income consumers needed to switch to lesser expensive animal proteins. Although Mexico is a net meat importer, it is expected that during 2012, exports of pork meat to Japan will continue. Industry sources report that they are able to receive greater profits by exporting higher- quality cuts to overseas Asian markets. The United States represents a potential niche market for specialty pork cuts. This market could be attractive to Mexican pork producers, but producers would need to find a market for other parts of the carcass (e.g., head, legs, and shoulders). Mexico?s distribution channels for these products exist, but the material would be competing with current supplies and potentially force down margins. Policy: The GOM continues implementing a number of programs to support agricultural production. Among these, the Agricultura Por Contrato (Forward Contract Program) is of significant and special importance for the swine industry. Both crop producers and animal feeders are encouraged to contract for grain delivery through this Forward Contract Program. The GOM, specifically, SAGARPA, provides a subsidy towards the cost of hedging. The hedge along with the actual contract provides assurance for a set grain price for the animal producers. While the program is open to all producers, the larger and more sophisticated producers have shown a greater interest in participating in the program. On October 21, 2011, the Secretariat of Economy (SE) published in the Diario Oficial (Federal Register) an announcement revoking the retaliatory import tariffs on 99 U.S. agricultural and industrial products. This elimination of tariffs was the second step in the cancelation of tariffs after signing a MX2016 Mexico Remains an Important Market for U.S. Beef and Pork Page 5 bilateral memorandum of understanding on July 6, 2011. The tariff on 2 harmonized tariff system (HTS) line items related to pork meat (HTS 0203.12.01 and 0203.22.01) was reduced to 0 percent with the October 21 announcement. (See GAIN Report MX1076 Mexico Eliminates Trucking Retaliation Tariffs). Production, Supply and Demand Data Statistics: Animal Numbers, Cattle Mexico 2010 2011 2012 Market Year Begin: Jan 2010 Market Year Begin: Jan 2011 Market Year Begin: Jan 2012 USDA Official New Post USDA Official New Post USDA Official New Post Total Cattle Beg. Stks 22,192 22,192 21,456 21,456 20,075 20,090 Dairy Cows Beg. Stocks 3,175 3,175 3,185 3,185 3,200 3,200 Beef Cows Beg. Stocks 6,960 6,960 7,000 7,000 6,900 6,900 Production (Calf Crop) 7,000 7,000 6,900 6,900 6,800 6,800 Total Imports 25 25 18 16 20 20 Total Supply 29,217 29,217 28,374 28,372 26,895 26,895 Total Exports 1,261 1,261 1,450 1,435 1,425 1,435 Cow Slaughter 1,535 1,535 1,600 1,600 1,575 1,575 Calf Slaughter 300 300 340 300 300 300 Other Slaughter 4,215 4,215 4,435 4,447 4,525 4,500 Total Slaughter 6,050 6,050 6,375 6,347 6,400 6,375 Loss 450 450 474 500 450 475 Ending Inventories 21,456 21,456 20,075 20,090 18,620 18625 Total Distribution 29,217 29,217 28,374 28,372 26,895 26,910 1000 HEAD, PERCENT Not Official USDA Data Meat, Beef and Veal Mexico 2010 2011 2012 Market Year Begin: Jan 2010 Market Year Begin: Jan 2011 Market Year Begin: Jan 2012 USDA Official New Post USDA Official New Post USDA Official New Post Slaughter (Reference) 6,050 6,050 6,375 6,347 6,400 6,375 Beginning Stocks 0 0 0 0 0 0 Production 1,751 1,751 1,830 1,825 1,845 1,830 Intra-EU Imports 0 0 0 0 0 0 Other Imports 296 296 280 265 270 300 Total Imports 296 296 280 265 270 300 Total Supply 2,047 2,047 2,110 2,090 2,115 2,130 Intra EU Exports 0 0 0 0 0 0 Other Exports 103 103 220 148 235 250 Total Exports 103 103 220 148 235 250 Human Dom. Consumption 1,934 1,934 1,880 1,932 1,870 1,870 Other Use, Losses 10 10 10 10 10 10 Total Dom. Consumption 1,944 1,944 1,890 1,942 1,880 1,880 Ending Stocks 0 0 0 0 0 0 Total Distribution 2,047 2,047 2,110 2,090 2,115 2,130 1000 HEAD, 1000 MT CWE, PERCENT, PEOPLE, KG Not Official USDA Data Animal Numbers, Swine Mexico 2010 2011 2012 Market Year Begin: Jan 2010 Market Year Begin: Jan 2011 Market Year Begin: Jan 2012 USDA Official New Post USDA Official New Post USDA Official New Post Total Beginning Stocks 8,979 8,979 9,007 9,007 9,240 9,276 Sow Beginning Stocks 1,068 1,068 1,065 1,065 1,065 1,070 Production (Pig Crop) 16,200 16,200 16,300 16,350 16,300 16,500 MX2016 Mexico Remains an Important Market for U.S. Beef and Pork Page 6 Total Imports 9 9 13 12 15 15 Total Supply 25,188 25,188 25,320 25,369 25,555 25,791 Total Exports 0 0 0 0 0 0 Sow Slaughter 10 10 13 13 12 12 Other Slaughter 15,390 15,390 15,287 15,300 15,488 15,500 Total Slaughter 15,400 15,400 15,300 15,313 15,500 15,512 Loss 781 781 780 780 780 780 Ending Inventories 9,007 9,007 9,240 9,276 9,275 9,499 Total Distribution 25,188 25,188 25,320 25,369 25,555 25,791 1000 HEAD, PERCENT Not Official USDA Data Meat, Swine Mexico 2010 2011 2012 Market Year Begin: Jan 2010 Market Year Begin: Jan 2011 Market Year Begin: Jan 2012 USDA Official New Post USDA Official New Post USDA Official New Post Slaughter (Reference) 15,400 15,400 15,300 15,313 15,500 15,512 Beginning Stocks 0 0 0 0 0 0 Production 1,165 1,165 1,170 1,182 1,180 1,215 Intra-EU Imports 0 0 0 0 0 0 Other Imports 687 687 630 594 650 650 Total Imports 687 687 630 594 650 650 Total Supply 1,852 1,852 1,800 1,776 1,830 1,865 Intra EU Exports 0 0 0 0 0 0 Other Exports 78 78 75 86 75 90 Total Exports 78 78 75 86 75 90 Human Dom. Consumption 1,774 1,774 1,725 1,690 1,755 1,775 Other Use, Losses 0 0 0 0 0 0 Total Dom. Consumption 1,774 1,774 1,725 1,690 1,755 1,775 Ending Stocks 0 0 0 0 0 0 Total Distribution 1,852 1,852 1,800 1,776 1,830 1,865 1000 HEAD, 1000 MT CWE, PERCENT, PEOPLE, KG Not Official USDA Data Author Defined: Author Defined: For More Information FAS/Mexico Web Site: We are available at www.mexico-usda.com or visit the FAS headquarters' home page at www.fas.usda.gov for a complete selection of FAS worldwide agricultural reporting. Other Relevant Reports Submitted by FAS/Mexico: Report Subject Date Number Submitted MX2012 Mexico 2012 Poultry Semi-Annual 3/20/2012 MX2004 Mexico Publishes Preliminary Determination on U.S. CLQs 1/20/2012 MX2005 January 2012 Grain and Feed Update: Intense Drought Lowers 1/27/2012 Corn, Sorghum, and Wheat Forecasts MX1092 New Meat and Poultry Letterhead Certificates Required 12/6/2011 MX1076 Mexico Eliminates Retaliatory Tariffs 10/21/2011 MX2016 Mexico Remains an Important Market for U.S. Beef and Pork Page 7 MX1009 Mexico Initiates an Antidumping Investigation on U.S. CLQs 2/8/2011 Useful Mexican Web Sites: Mexico's equivalent to the U.S. Department of Agriculture (SAGARPA) can be found at www.sagarpa.gob.mx, equivalent to the U.S. Department of Commerce (SE) can be found at www.economia.gob.mx and equivalent to the U.S. Food and Drug Administration (SALUD) can be found at www.salud.gob.mx. These web sites are mentioned for the readers' convenience but USDA does NOT in any way endorse, guarantee the accuracy of, or necessarily concur with, the information contained on the mentioned sites. MX2016 Mexico Remains an Important Market for U.S. Beef and Pork Page 8
Posted: 31 March 2012

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