US Imported Beef Market A Weekly Update

US Imported Beef Market A Weekly Update Prepared Exclusively for Meat & Livestock Australia - Sydney Volume 19, Issue 9 March 1, 2019 Prepared by: Steiner Consulting Group SteinerConsulting.com 800-526-4612 service@steinerconsulting.com Market Highlights for the Week: Australia beef exports in February were up 11% compared to a year ago but most of that increase (over 80%) went to the Chinese market. Exports to the US were also higher but not as much as US participants hoped for based on the slaughter data in February China is now buying as much beef from Australia and New Zealand as the US and growth trends are currently moving in opposite direction, with China demand expanding. US cattle inventory on January 1, 2019 was up just 0.5% compared to the previous year. The beef cow herd was up 1% compared to the previous year but USDA also revised lower its forecast for the prior year, implying that the actual cows in inventory at the start of the year was about the same as previously expected. US calf crop was up 1.8% in 2018, implying continued growth in US cattle/beef supplies through 2020. Supply of all cattle on feed, which includes smaller feedlots as well, was up 1.6% on January 1 while the supply of feeder cattle outside feedlots was 1% higher than the previous year. Imported Market Activity for the Week Imported beef prices were for the most part steady last week. There has not been a significant change in the volume of product offered from Australian or New Zealand suppliers and asking prices remain firm. US end users were hoping to see somewhat weaker prices due to the increase in slaughter in both countries but it appears, for now, that overseas packers remain well sold and able to continue to move product into other markets. While demand from China has been a key focus point (see table on page 2) one should not forget the effect that the signing of TPP-11 (without US) will have on beef trade flows going forward. The agreement went into effect at the start of the year and it appears to have had an immediate impact on beef flows into Japan. The US has a trade agreement with S. Korea which continued to offer a benefit to US exports there. However, those benefits will start to erode as TPP brings tariff relief for 15.0% HEIFERS HELD BACK FOR BEEF COW HERD REBUILDING JANUARY 1 SURVEY, YEAR OVER YEAR % CHANGE, USDA 10.0% 5.0% 0.0% -5.0% -10.0% Jan 1 2019 Est. -3.0 % -15.0%

VOLUME 19, ISSUE 9 US IMPORTED BEEF MARKET PAGE 2 Australian and New Zealand shipments to that market. As for Japan tariffs, USMEF notes that: Japan s tariff rates for chilled and frozen beef will be cut from 38.5% to 27.5% upon implementation, to 26.6% on April 1, then phased down to 9% over 16 years. Duties on beef variety meat, including tongues and skirts (now 12.8%), will be cut to 6.4% on implementation and to 5.7% on April 1, then phased to zero over 10 to 12 years. Japan will also eliminate tariffs on processed beef products. Australian cattle slaughter in the last four weeks has averaged about 10% above year ago levels, supporting higher exports in February. Data released by MAFF shows that total Australian beef exports for the month were 94,900 MT, 11% higher than a year ago. The bulk of that additional production went to the Chinese market, not the US. While shipments to the US East Coast were quite strong, it was offset by a reduction in exports to the West Coast. Australian shipments to the Chinese market were almost as large as the US, up 65% compared to a year ago. The growth in exports to China accounted for 83% of all the additional beef supply that Australia shipped in February. At this time we do not have access to export data from New Zealand but January New Zealand exports to China were up about 32% compared to the previous year while exports to the US declined. At this time, both Australia and New Zealand are exporting as much beef to the Chinese market than they were to the US. US cattle inventory and cow meat supply outlook US cow meat supplies have increased in recent years as producers have expanded both the beef and dairy cow herd. That supply growth appears to be coming to an end. While the results of the latest cattle inventory survey indicated that the beef cow herd as of January 1, 2019 was about 1% higher than the previous year, USDA revised down its estimates from the year prior. Will we see a similar revision about 2019? That remains to be seen. However, consider that between 2014 and 2017 (four years), the US cow herd (beef+milk) increased by 2.266 million head, or an average of 567,000 head of cows per year. A larger cow herd implies more cull cows available and a steady increase in the amount of grinding beef available in the market. Based on the revised USDA data, the beef cow herd on January 1, 2018 was up 339,000 Summary of Australian Beef and Veal Exports: February 2019 Source: MAFF 2/1/2018 2/1/2019 MT ch. % ch. Japan 23,983 23,422 (561) -2% South Korea 12,880 13,646 766 6% China 11,579 19,097 7,517 65% USA East 10,096 14,227 4,131 41% USA West 7,145 5,621 (1,524) -21% Total USA 17,240 19,847 2,607 15% Indonesia 4,275 4,849 574 13% Philippines 3,463 2,467 (996) -29% Total EU 1,735 1,488 (247) -14% Total Middle East 2,171 2,336 165 8% Other Markets 8,519 7,749 (771) -9% Total Aus 85,845 94,900 9,055 11% Ratio of Cow Slaughter vs. January 1 All Cow Inventory Annual Data. Source: USDA 18.0% 17.0% 16.0% 15.0% 14.0% 13.0% 12.0% 11.0% 10.0% 1990-2018 Avg. 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019F head from the year prior and by January 2019 the growth had slowed down to 221,000 head. The chart on page 1 shows that US producers no longer are holding back more heifers for herd rebuilding. In the short term this does not mean a smaller inventory since producers can maintain a stable herd by reducing the number of cows they send to market. However, eventually a smaller retention rate will lead to a lower herd. Pasture conditions this year will be critical for the number of cull cows that will come to market. As producers are not holding back more heifers, they will be reluctant to cull cows. Last year we thought US cow slaughter in 2019 was going to be around 5% higher than the year prior. At this time we think cow slaughter will be only about 1.2% Est

VOLUME 19, ISSUE 9 US IMPORTED BEEF MARKET PAGE 3 higher than a year ago and there is a higher likelihood that slaughter may be lower than a year ago. Other implications from the inventory survey The USDA survey suggests the calf crop in 2018 was 1.8% higher than the previous year. This is higher than the 1.6% increase analysts were expecting and tells us that an additional 645,000 head more calves were born in 2018. In 2017 the calf crop increased by 1.9% or 666,000 head. This is the fourth consecutive year that the calf crop has increased vs. the previous year and suggests higher cattle/beef supplies into 2020. While beef production will likely slow down by 2020, the pace of beef supply growth will not exactly mirror the trend in the calf crop. Herd rebuilding or liquidation efforts could either accelerate or slow down the trend. Our working forecast is for higher slaughter in the first half of 2020 and a lower slaughter in the second half. We think cattle slaughter will be down 1.6% in 2021 but subsequent surveys will allow us to firm up some of the longer range forecasts. USA ANNUAL CALF CROP Source: USDA-NASS 000 HEAD 41,000 40,000 39,000 38,000 37,000 36,000 35,000 34,000 33,000 32,000 1995 40.3 2008 36.2 MM growth, albeit very slow, phase. 2014 33.5 MM 2018 36.4 MM - The reason for expecting a slowdown in beef production growth has to do with the size of the cow herd and potential calf crops in 2019 and 2020. The beef cow herd as of January 1, 2019 is currently estimated at 31.766 million head, 1% higher than the previous year. The beef cow herd expanded by 2.9% in 2016 and 3.5% in 2017. Those two big growth years resulted in a notable increase in the number of calves born and have fueled the increase in US cattle numbers so far. However, in the last two years the beef cow herd has increased by 0.8% and 1%. Producers are holding back fewer heifers for herd replacement and a higher culling rate could result in a decline of the beef cow herd by next year. The milk cow inventory on January 1 was 0.8% lower, which was close to expectations since USDA tracks the milk cow numbers monthly. The total cow herd as of January 1, 2019 was only 0.5% higher than the previous year, implying a very modest increase in the calf crop during 2019. As the growth in the size of the calf crop moderates, so will forecasts for beef supply growth in the next two to three years. But note that, at this point, we are not talking about a contraction. This could change if we see a shift in the cull rate of beef and dairy cows in the next 12 months but for now the cattle cycle remains in a - The supply of feeder cattle outside feedlots as of January 1 was estimated at 26.380 million head, 255,000 head or 1% higher than a year ago. Please note this number is not adjusted for the small number of cows and bulls on feed. Lower placements in the last four months of 2018 mean more cattle will be available for placement this spring. - The total supply of cattle on feed, which includes small feedlots, was estimated to be 14.371 million head on January 1, 1.6% higher than the previous year. This growth rate is quite comparable from that in the +1000 head capacity monthly feedlot survey, which showed on feed supplies on January 1 were up 1.7% compared to a year ago. Nebraska inventory was down 1.8% and Kansas inventory was down 0.8%. However, there was a notable increase in Texas on feed inventories, up 3.8% vs. year ago. Feedlot inventories in some smaller states made notable gains, e.g, Illinois (+14%), Idaho (+11%), Indiana (+11%), Ohio (+7%), California (+9%). Gains in these five states were bigger than those in Texas (125k vs. 100k in TX).

VOLUME 19, ISSUE 9 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 28-Feb-19 21-Feb-19 1-Mar-18 from Last Year CME FEEDER CATTLE INDEX 139.23 141.31-1.5% 146.03-4.7% 1-Mar-19 22-Feb-19 2-Mar-18 FED STEER (5-MKT AVG) 126.51 124.99 1.2% 126.81-0.2% CUTTER COW CARCASS, NATIONAL, 90% LEAN, 350-400 LB. (carcass wt.) 98.00 95.50 2.6% 111.50-12.1% BONER COW CARCASS, NATIONAL, 85% LEAN, 400-500 LB. (carcass wt.) 100.50 97.00 3.6% 117.50-14.5% BREAKER COW CARCASS, NATIONAL, 75% LEAN, 500+ (carcass wt.) 93.50 93.50 0.0% 111.00-15.8% CUTTER COW CARCASS CUTOUT, 5-DAY MA, USDA 164.88 165.00-0.1% 154.79 6.5% 260 CME Feeder Cattle Index 240 220 200 180 160 140 120 100 80 60 2002 2003 2004 2005 2006 2007 2007 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Source: Chicago Mercantile Exchange

VOLUME 19, ISSUE 9 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 1-Mar-19 22-Feb-19 2-Mar-18 US East Coast Australian/NZ Lean, CIF 95 CL Bull, E. Coast 219.0 220.0 220.0 0.0 221.0 224.0-4.0 90 CL Blended Cow 208.0 209.0 207.0 209.0 0.0 211.0 213.0-4.0 90 CL Shank 206.0 207.0 205.0 207.0 0.0 212.0 213.0-6.0 85 CL Fores 188.0 190.0 188.0 189.0 1.0 193.0 194.0-4.0 85 CL Chucks UNQ UNQ N/A UNQ N/A 95 CL Bull, W. Coast 218.0 219.0 218.0 1.0 220.0 222.0-3.0 Uruguay CFH 90CL, E. Coast UNQ UNQ N/A UNQ N/A US East Coast, Trimmings, CIF 85 CL Trimmings 187.0 189.0 187.0 188.0 1.0 192.0 193.0-4.0 80 CL Trimmings 175.0 176.0 175.0 177.0-1.0 175.0 177.0-1.0 75 CL Trimmings UNQ UNQ N/A 169.0 170.0 N/A 65 CL Trimmings UNQ UNQ N/A 138.0 139.0 N/A US East Coast Australian Cuts, CIF Cap Off Steer Insides 270.0 275.0 280.0-5.0 280.0 285.0-10.0 Steer Insides 14/18 UNQ UNQ N/A UNQ N/A Steer Flats 225.0 230.0 225.0 230.0 0.0 235.0 240.0-10.0 Steer Knuckles 240.0 245.0 240.0 245.0 0.0 250.0 255.0-10.0

VOLUME 19, ISSUE 9 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 1-Mar-19 22-Feb-19 2-Mar-18 US East Coast Australian/NZ Lean, FOB US Port 95 CL Bull, E. Coast 231.0 232.0 231.0 232.0 0.0 230.0 232.0 0.0 90 CL Blended Cow 214.0 215.0 214.0 215.0 0.0 216.0 217.0-2.0 90 CL Shank 214.0 215.0 214.0 215.0 0.0 215.0 218.0-3.0 85 CL Fores 196.0 198.0 195.0 196.0 2.0 197.0 199.0-1.0 85 CL Chucks UNQ UNQ N/A UNQ N/A 95 CL Bull, W. Coast 228.0 230.0 229.0 230.0 0.0 229.0 230.0 0.0 Uruguay CFH 90CL, E. Coast UNQ UNQ N/A UNQ N/A US East Coast, Trimmings, FOB US Port 85 CL Trimmings 195.0 197.0 193.0 194.0 3.0 197.0 198.0-1.0 80 CL Trimmings 184.0 185.0 184.0 185.0 0.0 181.0 182.0 3.0 75 CL Trimmings UNQ UNQ N/A 173.0 174.0 N/A 65 CL Trimmings UNQ UNQ N/A 144.0 145.0 N/A US East Coast Australian Cuts, FOB US Port Cap Off Steer Insides 280.0 285.0 285.0 0.0 290.0 295.0-10.0 Steer Insides 14/18 UNQ UNQ N/A UNQ N/A Steer Flats 230.0 235.0 230.0 235.0 0.0 250.0 255.0-20.0 Steer Knuckles 255.0 260.0 255.0 260.0 0.0 255.0 260.0 0.0

VOLUME 19, ISSUE 9 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 1-Mar-19 22-Feb-19 2-Mar-18 Domestic Cutouts Low High Wt.Avg Low High Wt.Avg Low High Wt.Avg Choice Cutout 221.29 219.39 1.9 222.52-1.2 Select Cutout 216.79 212.35 4.4 214.64 2.2 Domestic Lean Grinding Beef 90 CL Boneless 210.9 215.5 212.3 207.0 215.5 211.7 0.7 213.5 221.0 217.0-4.7 85 CL Beef Trimmings 179.6 196.4 184.4 173.0 188.0 181.1 3.3 185.0 215.0 188.4-3.9 50 CL Beef Trim 76.8 76.8 70.5 83.5 83.5 69.3 1.2 87.0 87.0 83.1-12.6 Domestic Pork Trim 42 CL Pork Trim 20.1 33.5 22.7 21.0 40.5 24.9-2.2 25.4 41.8 29.6-6.9 72 CL Pork Trim 39.1 60.3 43.1 39.0 62.3 43.6-0.5 61.0 66.2 64.4-21.3 Point of Lean Values 90 CL Domestic 235.9 235.2 0.7 241.1-5.2 50 CL Beef Trimming 141.0 138.6 2.5 166.2-25.1 42 CL Pork Trim 54.1 59.3-5.1 70.5-16.4 72 CL Pork Trim 59.9 60.6-0.7 89.4-29.5 National Direct Fed Steer 126.51 124.99 1.5 126.81-0.3 (5-day accum. wt. avg. price)

VOLUME 19, ISSUE 9 US IMPORTED BEEF MARKET PAGE 8 TABLE 5 FUTURES AND SLAUGHTER INFORMATION From Last Futures Contracts Current Week Prior Week Week Last Year From Last Year 1-Mar-19 22-Feb-19 2-Mar-18 Live Cattle Futures April '19 129.550 128.875 0.68 122.175 7.38 June '19 120.425 119.475 0.95 114.400 6.02 August '19 116.275 115.500 0.78 112.100 4.18 October '19 116.925 116.625 0.30 114.650 2.27 Feeder Cattle Futures April '19 145.050 145.300-0.25 145.275-0.22 May '19 146.525 146.850-0.32 146.525 0.00 August '19 151.400 151.050 0.35 150.775 0.63 September '19 152.150 151.350 0.80 150.775 1.38 Corn Futures March '19 364 375 1/4-11.25 377 1/4-13.25 May '19 373 384 1/2-11.50 385 1/4-12.25 July '19 381 1/2 392 1/2-11.00 392 1/2-11.00 September '19 387 1/4 396 1/2-9.25 397 3/4-10.50 Ch Wheat Futures March '19 454 486 3/4-32.75 492-38.00 May '19 457 1/4 491 3/4-34.50 500-42.75 July '19 463 1/4 495-31.75 514 1/2-51.25 September '19 473 504 1/2-31.50 528 3/4-55.75 From Last Slaughter Information 7 Days Ending 7 Days Ending Week 7 Days Ending From Last Year 2-Mar-19 23-Feb-19 3-Mar-18 Total Cattle Slaughter 603,000 577,000 26,000 611,000-8,000 16-Feb-19 9-Feb-19 17-Feb-18 Total Cow Slaughter 127,332 129,868-2,536 121,452 5,880 Dairy Cow Slaughter 70,156 70,721-565 67,065 3,091 Beef Cow Slaughter 57,176 59,147-1,971 54,387 2,789

VOLUME 19, ISSUE 9 US IMPORTED BEEF MARKET PAGE 9 TABLE 7 - US BEEF IMPORTS (Source: USDA/AMS) US Fresh/Frozen Beef Imports. Metric Ton. Data Source: USDA/Agricultural Marketing Service Imports as of February 23, 2019 Individual Country Volume. MT & Y/Y % Ch. 50,000 45,000 40,000 YTD Imported Fresh/Frz Beef Passed for Entry in the US week 8 2/24/2018 2/23/2019 Argentina - - Australia 29,067 29,207 140 0.5% Brazil - - - Canada 36,086 44,137 8,051 22.3% Chile - - - Costa Rica 1,384 1,472 88 6.4% France - - - Honduras 302 334 32 10.6% Ireland 461 738 277 60.1% Japan 142 159 17 12.0% Mexico 30,089 33,336 3,247 10.8% Netherlands - - - New Zealand 32,847 21,825 (11,022) -33.6% Nicaragua 7,582 10,435 2,853 37.6% Spain - - - Uruguay 4,067 5,866 1,799 44.2% Total 142,025 147,508 5,483 3.9% Source: AMS - USDA 2017 2018 2019 TOTAL YTD: +3.9% Total 150,000 145,000 35,000 30,000 25,000 140,000 135,000 20,000 15,000 130,000 10,000 5,000-125,000 120,000 Total 0% 22% 11% -34% 38% 44% 3.9%

VOLUME 19, ISSUE 9 US IMPORTED BEEF MARKET PAGE 10 Australian Beef Quota Position Metric Ton. Australian Department of Agriculture Statistics 28-Feb-19 Quota Shipments 54,741 12.8% 2019 Quota 428,214 Balance 373,473 87.2% USA Quota Entries through Week Ending February 25 Source: US Customs 500,000 400,000 300,000 200,000 100,000 0 2018 YTD 2019 YTD Y/Y % Quota % cleared Australia New Zealand Uruguay Other 26,870,187 34,744,832 2,121,563 10,422,900 27,203,870 21,600,240 3,107,893 11,332,422 1% -38% 46% 9% 418,214,000 213,402,000 20,000,000 64,805,000 7% 10% 16% 17% Note: Customs did not provide an update this week. Data reflects last week s levels.