US Imported Beef Market A Weekly Update

US Imported Beef Market A Weekly Update Prepared Exclusively for Meat & Livestock Australia - Sydney Volume XVIII, Issue 49 December 14, 2018 Prepared by: Steiner Consulting Group SteinerConsulting.com 800-526-4612 service@steinerconsulting.com Note: This is the last full report for 2018. In the next three weeks we will publish a limited report, with indications for prices and US domestic prices and slaughter/trade statistics. The next full report will be published on January 12, 2018 Market Highlights for the Week: Imported beef prices continued to advance this past week on limited spot supplies and reduced availability from New Zealand Cattle slaughter in Australia and New Zealand has been lower than expected while Asia demand remains very firm, limiting the supply of imported beef available in the US market USDA currently expects beef imports for next year to be up just 0.5% compared to a year ago. However, lower imports from Australia and New Zealand could easily cause imports next year to decline, even when we account for more fresh beef now coming from Argentina. We think total on feed supplies as of December 1 were 2.6% higher than a year ago. Imported Market Activity for the Week There has been a dramatic shift in market sentiment in the US in the last two months. Imported beef prices were at least 20 cents below current levels only a few weeks ago. Since then, lower than expected supply availability from New Zealand, good demand in the US market and short covering have caused prices to rise sharply. Slaughter in Oceania declines sharply over the holidays and overseas supplies seasonally have less meat to offer at this time. For US end users and traders, this is a time when it makes little sense to continue to chase supplies that are not there. Whatever activity we are seeing at this time is from those market participants that would like to Understanding USDA Import Forecasts for 2019 and Alternative Forecast with Lower Imports from Australia/NZ Historical Data from USDA/FAS. 2019 Total Forecast from USDA + Steiner Calculations Partner 2014 2015 2016 2017 2018P change % ch. 2019F change % ch. 2019F change % ch. USDA Forecast Alternative Forecast World Total 989,182 1,129,296 1,010,853 1,016,994 1,021,062 4,068 0.4% 1,026,651 5,590 0.5% 1,002,949 (18,113) -1.8% Australia 360,946 423,005 252,181 231,561 226,235-5,326-2.3% 214,923 (11,312) -5.0% 208,136 (18,099) -8.0% New Zealand 198,527 219,699 202,881 184,730 192,673 7,943 4.3% 188,820 (3,853) -2.0% 183,040 (9,634) -5.0% Canada 204,241 212,901 247,941 258,781 278,189 19,409 7.5% 292,098 13,909 5.0% 283,753 5,564 2.0% Mexico 115,424 145,771 182,926 211,006 187,795-23,211-11.0% 190,612 2,817 1.5% 190,612 2,817 1.5% Uruguay 29,420 43,884 38,005 38,072 34,075-3,998-10.5% 31,349 (2,726) -8.0% 29,986 (4,089) -12.0% Brazil 20,304 36,668 37,331 36,188 33,547-2,642-7.3% 34,553 1,006 3.0% 34,218 671 2.0% Nicaragua 46,366 34,883 37,532 44,913 54,570 9,656 21.5% 60,026 5,457 10.0% 58,935 4,366 8.0% Costa Rica 9,631 9,210 9,174 8,119 7,996-123 -1.5% 8,156 160 2.0% 8,156 160 2.0% Honduras 3,013 1,120 22 663 2,485 1,822 275.0% 2,857 373 15.0% 2,857 373 15.0% Ireland 0 1,039 1,716 1,451 1,632 181 12.5% 1,877 245 15.0% 1,877 245 15.0% Japan 636 207 337 344 1,066 722 210.0% 1,279 213 20.0% 1,279 213 20.0% Chile 198 602 613 223 20-202 -91.0% 100 80 400.0% 100 80 400.0% Argentina 460 308 0 0 30 30 25,000 24,970 20,000 19,970 Other 16 (0) 195 944 750-194 -20.6% 862 825 75 10.0%

VOLUME XVIII, ISSUE 49 US IMPORTED BEEF MARKET PAGE 2 New Zealand Weekly Bull Slaughter Based on Oct - Sep Marketing Year. Source: New Zealand Meat Board New Zealand Weekly Cow Slaughter Based on Oct - Sep Marketing Year. Source: New Zealand Meat Board 35,000 head 60,000 head 30,000 2015-16 2016-17 50,000 2015-16 2016-17 25,000 20,000 15,000 2017-18 2018-19 40,000 30,000 2017-18 2018-19 10,000 20,000 5,000 0 Christmas Plant Closures 10,000 0 Christmas Plant Closures Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep shore up their positions before the end of the year. Finding meat to cover spot needs has become particularly difficult and this has contributed to the ongoing rally. Market notes for this week: - The latest USDA supply/demand report (WASDE) included the most current forecast for beef imports in 2019. According to USDA, beef imports next year are expected to be 0.5% higher than a year ago. This represented a 0.3% reduction from the forecast that USDA published in November. As USDA noted in their report Beef import forecasts for 2018 and 2019 are reduced from the previous month on lower expected exportable supplies of processing grade beef from Australia. We are not privy to the process that USDA followed to come up with their forecast but the table on page 1 outlines actual imports, on a MT product basis, and our GUESS as to country level forecasts that probably drove the USDA decision making. Please note that in order to make the math work, we had to include 25k MT of Argentine beef imports. Our own forecast is for lower US beef imports next year. This is because we think imports from Australia and New Zealand have the potential to decline significantly next year. We see continued growth in US beef imports from Central and South America. Beef imports from Canada and Mexico are highly uncertain at this time. The weak CND and strong beef prices in the US have encouraged higher shipments to the US market. However, a smaller cattle herd and strong Asia demand may see more Canadian beef diverted away from the US market. We would not be surprised if Canadian beef imports actually decline next year. Contrary to what the AMS data shows (page 9), imports from Mexico are down this year. Keep in mind that the USDA Foreign Agricultural statistics are the official beef import data. The AMS report is based on FSIS inspection data and thus has limitations. - The latest data we have available for New Zealand is for the week ending November 17, showing total cattle slaughter for that week at 40,907 head, almost unchanged from the same week a year ago. Based on how the market has been trading recently, we think overall slaughter numbers have declined, especially bull slaughter. One thing to consider is that bull slaughter generally ramps up quickly in December and January, so it makes little sense to look at the y/y change in slaughter during the start of the marketing year. Consider for instance that last year bull slaughter between the first week of October (start of the marketing year) and mid November was a total of around 46k head (7 weeks). However, between mid November and mid January (9 weeks), bull slaughter was a total of 196k head. For the week ending November 17 NZ bull slaughter was estimated at 12,057 head, 2% lower than last year. Cow slaughter for the same week was estimated at just 7,640 head, 14% lower than the comparable week a year ago. It is important to consider the significant seasonality in New Zealand cow slaughter as well as the shifts in demand from New Zealand beef from China. For now the combination of strong China demand and limited supplies due to good pasture conditions have caused New Zealand suppliers to have little availability through next January. While the situation may change, at this point it appears a fair bet that New Zealand prices will stay firm for the next few weeks and likely gain from current levels.

VOLUME XVIII, ISSUE 49 US IMPORTED BEEF MARKET PAGE 3 - US cattle slaughter for the week ending December 15 was estimated at 654,000 head, down from the 667,000 head that were processed a week ago but still 4.2% higher than a year ago. Strong beef demand for holiday needs and for new year retail promotions has caused packers to bid more aggressively for cattle in the last two years. The robust slaughter pace has been exactly what feedlots needed and combined with lower placements of cattle on feed in the last three months it has gone a long way towards working down inventories of market ready cattle. Futures have responded to the improved marketing pace and robust cutout values, with most contracts now trading near contract highs. We don t have the full estimates for last week for non fed cattle slaughter but our estimate is for a 135,000 head week, 5% higher than a year ago and well above the 125,000 head average of the last five years. We should have a full week of slaughter again next week and then two holiday shortened weeks. Domestic lean beef prices have been steady in recent days, in part because of the rather large non-fed slaughter numbers so far. However, lower cow slaughter at the end of the year, lower prices for fat beef trimmings and seasonal improvement in ground beef demand after the first of the year should help bolster domestic 90CLvalues in the next three weeks. - USDA next week will publish the results of its monthly survey of feedlots with +1000 head capacity. We have not seen what analysts expect the feedlot survey to show but below are our thoughts: Placements: We think feedlots placed about 2.5% fewer cattle on feed in November 2018 than the same period a year ago. If we are correct, this would be the third consecutive month of lower placements. Indeed, if we are correct, in the last three months feedlots placed about 300,000 fewer head of cattle on feed than a year ago. Imports of feeder cattle from Mexico were down in November and we also saw fewer cattle traded through auction markets, which often implies a decline in placement activity. The only reason our numbers were not even lower is because of some data showing an increase in placements in the Southern Plains. WEEKLY COW & BULL SLAUGHTER. '000 HEAD Source: USDA BEGINNING OF MONTH INVENTORIES, 000 HEAD 150 140 130 120 110 100 90 11,900 11,700 11,500 11,300 11,100 10,900 10,700 10,500 10,300 10,100 9,900 5-Yr Avg. 2016 2017 2018 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec MONTHLY FED CATTLE INVENTORIES, +1000 HEAD CAPACITY FEEDLOTS Dec. 1 Est. 5-Yr Avg 2017 2018 2012 JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC heifers slaughtered on a dairy and weekly basis. Our current estimate is for November marketings to register a 1% increase compared to a year ago. Total on feed: Based on our estimate for placements and marketings we think total on feed inventories as of December 1 were 2.6% higher than a year ago. The front end supply has declined but it is still notably higher than a year ago. Lower placements in the last three months helps explain why futures still maintain a notable premium for Feb/Apr cattle relative to current market. Marketings: We think we have a better handle on this number than placements since USDA does provide an estimate on the number of steers and

VOLUME XVIII, ISSUE 49 US IMPORTED BEEF MARKET PAGE 4 CME Cattle Feeder Index and US Cattle Markets Special Live Animal Reference Price Current Week Prior Week % CHANGE VS. Last Year WK AGO 13-Dec-18 6-Dec-18 14-Dec-17 from Last Year CME FEEDER CATTLE INDEX 146.91 145.53 0.9% 154.40-4.9% 14-Dec-18 7-Dec-18 15-Dec-17 FED STEER (5-MKT AVG) 118.06 117.12 0.8% 117.02 0.9% CUTTER COW CARCASS, NATIONAL, 90% LEAN, 350-400 LB. (carcass wt.) 84.00 83.00 1.2% 96.00-12.5% BONER COW CARCASS, NATIONAL, 85% LEAN, 400-500 LB. (carcass wt.) 82.00 80.00 2.5% 96.50-15.0% BREAKER COW CARCASS, NATIONAL, 75% LEAN, 500+ (carcass wt.) 79.00 76.50 3.3% 90.50-12.7% CUTTER COW CARCASS CUTOUT, 5-DAY MA, USDA 155.63 155.66 0.0% 154.79 0.5% 260 CME Feeder Cattle Index 240 220 200 180 160 140 120 100 80 60 Source: Chicago Mercantile Exchange

VOLUME XVIII, ISSUE 49 US IMPORTED BEEF MARKET PAGE 5 TABLE 2 IMPORTED BEEF PRICES, 7:45 DAYS, CIF From Last Current Week Prior Week Week Last Year From Last Year 14-Dec-18 7-Dec-18 15-Dec-17 US East Coast Australian/NZ Lean, CIF 95 CL Bull, E. Coast 208.0 211.0 203.0 205.0 6.0 210.0 212.0-1.0 90 CL Blended Cow 193.0 195.0 190.0 192.0 3.0 198.0 200.0-5.0 90 CL Shank 191.0 194.0 189.0 190.0 4.0 195.0 198.0-4.0 85 CL Fores 184.0 185.0 178.0 180.0 5.0 182.0 185.0 0.0 85 CL Chucks UNQ UNQ N/A UNQ N/A 95 CL Bull, W. Coast 207.0 208.0 203.0 204.0 4.0 208.0 211.0-3.0 Uruguay CFH 90CL, E. Coast UNQ UNQ N/A UNQ N/A US East Coast, Trimmings, CIF 85 CL Trimmings 182.0 183.0 178.0 179.0 4.0 182.0 183.0 0.0 80 CL Trimmings UNQ UNQ N/A 164.0 166.0 N/A 75 CL Trimmings UNQ UNQ N/A UNQ N/A 65 CL Trimmings UNQ UNQ N/A UNQ N/A US East Coast Australian Cuts, CIF Cap Off Steer Insides 280.0 280.0 0.0 285.0 290.0-10.0 Steer Insides 14/18 UNQ UNQ N/A UNQ N/A Steer Flats 215.0 220.0 215.0 220.0 0.0 220.0 225.0-5.0 Steer Knuckles 250.0 250.0 0.0 245.0 250.0 0.0

VOLUME XVIII, ISSUE 49 US IMPORTED BEEF MARKET PAGE 6 TABLE 3 IMPORTED BEEF PRICES, 7:45 DAYS, US WAREHOUSE From Last Current Week Prior Week Week Last Year From Last Year 14-Dec-18 7-Dec-18 15-Dec-17 US East Coast Australian/NZ Lean, FOB US Port 95 CL Bull, E. Coast 216.0 218.0 213.0 214.0 4.0 228.0 231.0-13.0 90 CL Blended Cow 201.0 202.0 197.0 199.0 3.0 210.0 213.0-11.0 90 CL Shank 199.0 200.0 194.0 196.0 4.0 208.0 210.0-10.0 85 CL Fores 191.0 194.0 187.0 189.0 5.0 194.0 195.0-1.0 85 CL Chucks UNQ UNQ N/A UNQ N/A 95 CL Bull, W. Coast 215.0 216.0 210.0 212.0 4.0 227.0 230.0-14.0 Uruguay CFH 90CL, E. Coast UNQ UNQ N/A UNQ N/A US East Coast, Trimmings, FOB US Port 85 CL Trimmings 191.0 192.0 187.0 188.0 4.0 193.0 194.0-2.0 80 CL Trimmings 185.0 187.0 UNQ N/A 174.0 175.0 12.0 75 CL Trimmings 175.0 176.0 UNQ N/A 160.0 162.0 14.0 65 CL Trimmings UNQ UNQ N/A UNQ N/A US East Coast Australian Cuts, FOB US Port Cap Off Steer Insides 285.0 290.0 285.0 290.0 0.0 285.0 290.0 0.0 Steer Insides 14/18 UNQ UNQ N/A UNQ N/A Steer Flats 220.0 230.0 220.0 230.0 0.0 UNQ N/A Steer Knuckles 255.0 260.0 255.0 260.0 0.0 255.0 260.0 0.0

VOLUME XVIII, ISSUE 49 US IMPORTED BEEF MARKET PAGE 7 TABLE 4 US DOMESTIC BEEF AND CATTLE PRICES Current Week Prior Week From Last Week Last Year from Last Year 14-Dec-18 7-Dec-18 15-Dec-17 Domestic Cutouts Low High Wt.Avg Low High Wt.Avg Low High Wt.Avg Choice Cutout 210.96 214.29-3.3 201.87 9.1 Select Cutout 203.14 200.50 2.6 183.25 19.9 Domestic Lean Grinding Beef 90 CL Boneless 193.0 201.0 195.2 192.0 201.0 194.9 0.3 208.0 219.5 210.8-15.6 85 CL Beef Trimmings 158.0 181.1 163.0 155.0 170.0 160.3 2.7 174.0 187.0 178.5-15.4 50 CL Beef Trim 73.0 73.0 59.6 82.4 82.4 68.8-9.3 60.8 60.8 50.8 8.8 Domestic Pork Trim 42 CL Pork Trim 19.0 42.3 27.0 25.5 39.3 28.2-1.2 17.6 39.1 25.2 1.8 72 CL Pork Trim 38.0 66.3 50.5 34.5 67.3 50.3 0.2 63.0 70.4 66.2-15.7 Point of Lean Values 90 CL Domestic 216.9 216.5 0.4 234.2-17.3 50 CL Beef Trimming 119.1 137.7-18.5 101.6 17.5 42 CL Pork Trim 64.3 67.2-2.9 60.0 4.3 72 CL Pork Trim 70.2 69.9 0.3 92.0-21.8 National (5 day accum. Direct wt. Fed avg. Steer 118.06 117.12 0.9 117.02 1.0 price)

VOLUME XVIII, ISSUE 49 US IMPORTED BEEF MARKET PAGE 8 TABLE 5 FUTURES AND SLAUGHTER INFORMATION From Futures Contracts Current Week Prior Week Last Week Last Year From Last Year 14-Dec-18 7-Dec-18 15-Dec-17 Live Cattle Futures December '18 119.575 117.900 1.68 115.575 4.00 February '19 122.400 121.525 0.88 118.300 4.10 April '19 124.500 123.625 0.88 120.200 4.30 June '19 116.075 115.100 0.98 113.100 2.98 Feeder Cattle Futures January '19 147.575 144.375 3.20 145.225 2.35 March '19 145.775 141.875 3.90 143.325 2.45 May '19 146.250 142.525 3.72 143.650 2.60 August '19 146.350 142.850 3.50 143.650 2.70 Corn Futures December '18 384 3/4 374 10.75 340 44.75 March '19 392 1/4 385 1/2 6.75 352 3/4 39.50 May '19 398 3/4 392 3/4 6.00 361 37.75 July '19 400 399 1/4 0.75 369 1/4 30.75 Ch Wheat Futures December '18 530 519 1/2 10.50 392 138.00 March '19 536 1/2 531 1/4 5.25 419 117.50 May '19 542 3/4 536 6.75 432 1/4 110.50 July '19 549 3/4 540 9.75 445 3/4 104.00 From Slaughter Information 7 Days Ending 7 Days Ending Last Week 7 Days Ending From Last Year 15-Dec-18 8-Dec-18 16-Dec-17 Total Cattle Slaughter 654,000 667,000-13,000 628,000 26,000 1-Dec-18 24-Nov-18 2-Dec-17 Total Cow Slaughter 121,866 101,231 20,635 120,132 1,734 Dairy Cow Slaughter 63,763 50,936 12,827 58,963 4,800 Beef Cow Slaughter 58,103 50,295 7,808 61,169-3,066

VOLUME XVIII, ISSUE US IMPORTED BEEF MARKET PAGE 9 TABLE 7 - US BEEF IMPORTS (Source: USDA/AMS) YTD Imported Fresh/Frz Beef Passed for Entry in the US week 49 12/9/2017 12/8/2018 Australia 227,691 222,513 (5,178) -2.3% Brazil 9,022 - (9,022) -100.0% Canada 251,837 262,364 10,527 4.2% Chile 226 - (226) -100.0% Costa Rica 7,736 7,655 (81) -1.0% France - - - Honduras 511 1,732 1,221 238.9% Ireland 2,204 2,705 501 22.7% Japan 301 391 90 29.9% Mexico 176,714 189,294 12,580 7.1% Netherlands 228 - (228) -100.0% New Zealand 172,239 182,498 10,259 6.0% Nicaragua 44,718 51,570 6,852 15.3% Spain - - - Uruguay 36,367 33,435 (2,932) -8.1% Total 929,794 954,157 24,363 2.6% Source: AMS - USDA US Fresh/Frozen Beef Imports. Metric Ton. Data Source: USDA/Agricultural Marketing Service Imports as of December 8, 2018 Individual Country Volume. MT & Y/Y % Ch. 300,000 250,000 2016 2017 2018 TOTAL YTD: +2.6% Total 960,000 955,000 950,000 200,000 945,000 150,000 100,000 940,000 935,000 930,000 50,000-925,000 920,000 915,000 Total -2% 4% 7% 6% 15% -8% 2.6%

VOLUME XVIII, ISSUE US IMPORTED BEEF MARKET PAGE 10 Australian Beef Quota Position Metric Ton. Australian Department of Agriculture Statistics 13-Dec-18 Quota Shipments 224,506 47.0% 2018 Quota 423,214 53.0% Balance 198,708 USA Quota Entries through Week Ending December 10 Source: US Customs 500,000 400,000 300,000 200,000 100,000 0 2017 YTD 2018 YTD % ch. Quota % cleared Australia New Zealand Uruguay Other 218,892,117 172,662,228 19,015,750 63,771,065 213,623,736 179,453,176 18,940,850 64,805,000-2% 4% 0% 2% 418,214,000 213,402,000 20,000,000 64,805,000 51% 84% 95% 100% Note: Customs did not provide an update this week. Data reflects last week s levels.