US Imported Beef Market A Weekly Update

US Imported Beef Market A Weekly Update Prepared Exclusively for Meat & Livestock Australia - Sydney Volume 19, Issue 10 March 8, 2019 Prepared by: Steiner Consulting Group SteinerConsulting.com 800-526-4612 service@steinerconsulting.com Market Highlights for the Week: US domestic lean boneless beef prices continued to climb this week, in line with the normal seasonal increase and at the highest level since last July. According to USDA-AMS, combined beef imports from Australia and New Zealand through the end of February were about 13,000 MT or 18% lower than the same period a year ago. Cattle slaughter in Australia and New Zealand has been trending higher but offerings in the US market remain somewhat limited, in part because more beef is currently traded direct. Boneless beef in cold storage at the end of January was 4.1% higher than a year ago. But inventories in Central US, where packing plants are located, were lower than a year ago. All the increase was in the Middle Atlantic region, possibly due to end users adding to their positions to hedge spring market risk. Beef cow inventory was up 0.9% on January 1. The beef cow herd in Texas accounted for about 14% of the national cow herd but Texas contributed about 45% to the overall increase in beef cow numbers. Total supply of cattle on feed as of February 1 was just 0.4% higher than a year ago. The inventory of cattle that had been on feed for 120 days or more (Feb/Mar/early Apr supply) was 17% higher than a year ago. The inventory of cattle that will be available for marketing in May and June is now well below year ago levels. Imported Market Activity for the Week Imported beef prices were higher last week even as domestic end users were quite cautious in their bids. Higher slaughter in Australia and New Zealand had some traders and users hopeful of higher offerings from overseas suppliers and the potential for modestly lower prices. That did not seem to be the case and ultimately those looking to secure product had to raise their bids in order to get some of their needs covered. Higher prices in the domestic market and upside price risk for domestic beef in April and May ended up being a more significant factor. And this should not be a surprise. It is quite normal for imported beef values to get a lift in March as end users look to have a bit more coverage for the spring. New Zealand supplies should increase but the wild card this year will be the effect of Chinese demand on that market. There is real fear that China could play a significant role during the seasonal increase in cow slaughter in New Zealand and limit the amount of beef available for shipments to the US. If that happens, then packers with US orders could get quite short and potentially delay deliveries until they get caught up. Waiting for better prices has more 90CL Trim: 5-Yr Seasonal vs. Current Price Trends Price Ratio of 90CL Boneless Beef vs. Fed Steer Prices 1.10 Seasonal Factor Price, $/cwt 240.00 2.30 1.08 Seasonal Factor (left axis) 235.00 230.00 2.20 2.10 1.05 225.00 2.00 2018 1.03 1.00 220.00 215.00 210.00 1.90 1.80 5-Yr Avg. 0.98 0.95 2019 Prices (right axis) 2018 Prices (right axis) 205.00 200.00 195.00 1.70 1.60 1.50 2019 0.93 0.90 190.00 185.00 180.00 1.40 2-Jan-19 16-Jan-19 30-Jan-19 13-Feb-19 27-Feb-19 13-Mar-19 27-Mar-19 10-Apr-19 24-Apr-19 8-May-19 22-May-19 5-Jun-19 19-Jun-19 3-Jul-19 17-Jul-19 31-Jul-19 14-Aug-19 28-Aug-19 11-Sep-19 25-Sep-19 9-Oct-19 23-Oct-19 6-Nov-19 20-Nov-19 4-Dec-19 18-Dec-19 2019 WEDNESDAY DATES

VOLUME 19, ISSUE 10 US IMPORTED BEEF MARKET PAGE 2 risk this year than in years past and traders will be much more cautious in shorting the market. The price of lean domestic grinding beef continues to track very close with the five year seasonal trend. Last year lean beef prices were quite steady in the first half of the year but then declined earlier than expected in July and were sharply lower into the fall. It was this weakness in domestic values that also pressured prices for imported beef last September and October. We could see a similar pattern again this year. Good ground beef demand has seen lean beef prices climb quickly this year and more limited supplies of market ready cattle on feed in late spring and early summer could further support prices. Currently futures are pricing April cattle at around $130/cwt and May cattle in the mid 120s. An average multiple of 1.75 of 90CL boneless beef to cattle for the month of May would imply 90CL beef values around 220. But last year the ratio of 90s to fed cattle was higher than the five year average, indicating better demand. The risk at this point appears to be to the upside, at least through June. Retailers are expected to once again present consumers with ample beef features, in part thanks to the higher rights that beef features offer. US foodservice operators that seek to include more fresh beef in their hamburger patties will find a competitive marketplace. Fed cattle weights are running well below year ago levels and at this point the market is vulnerable to a weather surprise, like what happened in 2017. Faced with these risks, it is understandable that end users want to have a bit more protection in the short term. While things may change down the road, now is not the time to wait for a downturn in the imported complex. In our opinion, this attitude was reflected in trading this past week. US WEEKLY BEEF IMPORTS FROM AUSTRALIA + NEW ZEALAND. FR/FZ BEEF ONLY. MT Data Source: USDA Livestock, Poultry & Grain Market News 20,000 2015 2016 2017 2018 2019 18,000 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 - Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Regional US Beef Cow Numbers Last week we highlighted some of the data from the semi annual Cattle Inventory report. The beef cow herd in the last report was 0.9% higher than a year ago but because USDA revised lower its estimates for 2018 the net increase in the number of beef cows was not a large as some would expect. As the map above shows, the bulk of the increase in US beef cow inventories was in the Great Plains (Montana, North Dakota, South Dakota, Wyoming, Nebraska, Kansas, Colorado, Oklahoma, Texas and New Mexico). The biggest increase was in Texas, which has the largest num- ber of beef cows in the US. The beef cow herd in Texas was estimated at 4.655 million head, 135,000 head higher than a yea ago and 745,000 head or 19% higher than the cyclical low in 2014. Texas accounted for 14% of the total US beef cow inventory at the start of this year but it contributed about 45% to the overall gain in beef cow numbers.

VOLUME 19, ISSUE 10 US IMPORTED BEEF MARKET PAGE 3 Cold Storage The total supply of beef in cold storage at the end of January was estimated to be 510.1 million pounds, 1.7% higher than a year ago. There was more boneless beef in cold storage than a year ago while bone-in stocks were sharply lower, likely due to strong retail clearance over the holidays. Strong prices for beef ribs have limited the amount of rib subprimals going into cold storage in January. The total inventory of boneless beef at the end of January was 477.4 million pounds, 18.6 million pounds or 4.1% higher than a year ago. As the map on page 2 shows, inventories were higher in the Middle Atlantic region but lower in the Central regions. It could be that the increase in the Middle Atlantic is due to more imported beef in cold storage but lower imports from Australia and New Zealand would argue against this. Rather, we think the increase is due to the fact that owners of imported beef see more upside risk and thus are not particularly anxious to liquidate inventories. Also, lower prices for 50CL beef in January may have induced both traders and end users to stock up in anticipation of higher prices in the spring. What the data also says to us is that the higher boneless beef inventories are not a result of weak demand. If demand was weak then packers would probably put more boneless beef in cold storage near their plants and that is not what the data shows. Cattle on feed as of February 1. Analysts polled ahead of the report on average expected placements in January to be down 6.5% compared to the previous year. The USDA survey pegged placements for that month at 1.959 million head, 5.3% lower than a year ago. We do not think the difference is large enough to impact the market. Poor feedlot conditions and extreme weather negatively impacted the flow of cattle into feedlots in January. Feedlots have reduced the number of cattle they have placed on feed in recent months. This has helped them keep inventories current, evidenced in fed cattle prices coming to market. However, it also has weighed on feeder cattle prices. While fed cattle prices have been trending up, feeder cattle futures have trended lower as participants expect to see more feeder cattle available for placement or for backgrounding this spring. For the period Sep-Jan feedlots have placed 488,000 fewer cattle on feed than the previous Million Head 12.0 11.8 11.6 11.4 11.2 11.0 10.8 10.6 10.4 10.2 10.0 Cattle On Feed, U.S., 1,000+ Cap. Feedlots Range of Estimates 5-yr. Avg. 2019 2018 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec February 1 On Feed Actual vs. Estimates (% of Last Year) Actual Avg. Est. Range of Estimates 100.4% 100.2% 99.1% 100.6% 1,000 Head Feb-19 Jan-19 Feb-18 5-yr Avg. 11,678 11,690 11,630 10,902 As % of: 99.9% 100.4% 107.1% year. As a result, the number of cattle on feed now is barely higher than a year ago despite a higher calf crop in 2017 and 2018. The supply of long fed cattle remains above year ago levels, which could keep fed cattle prices in check in the near term. The inventory of cattle that, as of February 1, had spent 150 days or more on feed was estimated to be 1.999 million head, 36.4% higher than a year ago. This was the biggest inventory of +150 day cattle as of February 1 since the survey begun some 20 years ago. The inventory of +120 day cattle was estimated at 3.993 million head, 12.2% higher than a year ago. The y/y decline in placements was 109,000 head and much of that decline (71k head) was due to fewer placements of 700-799 pound cattle. Lower placements of such cattle and lower placements during Sep-Dec imply a potential shortfall in available supplies during May/Jun. There is currently a fairly wide spread between Apr and Jun fed cattle futures and the latest results argue for possibly a tighter spread. Fed cattle weights are lighter than a year ago and the spring market is vulnerable to negative weather surprise, as was the case in 2017.

VOLUME 19, ISSUE 10 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 7-Mar-19 28-Feb-19 8-Mar-18 from Last Year CME FEEDER CATTLE INDEX 140.03 139.23 0.6% 144.18-2.9% 8-Mar-19 1-Mar-19 9-Mar-18 FED STEER (5-MKT AVG) 128.15 126.51 1.3% 126.75 1.1% CUTTER COW CARCASS, NATIONAL, 90% LEAN, 350-400 LB. (carcass wt.) 98.50 98.00 0.5% 110.50-10.9% BONER COW CARCASS, NATIONAL, 85% LEAN, 400-500 LB. (carcass wt.) 101.00 100.50 0.5% 115.50-12.6% BREAKER COW CARCASS, NATIONAL, 75% LEAN, 500+ (carcass wt.) 94.00 93.50 0.5% 111.50-15.7% CUTTER COW CARCASS CUTOUT, 5-DAY MA, USDA 166.51 164.88 1.0% 154.79 7.6% 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 10 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 8-Mar-19 1-Mar-19 9-Mar-18 US East Coast Australian/NZ Lean, CIF 95 CL Bull, E. Coast 220.0 223.0 219.0 220.0 3.0 222.0 223.0 0.0 90 CL Blended Cow 210.0 211.0 208.0 209.0 2.0 211.0 213.0-2.0 90 CL Shank 208.0 209.0 206.0 207.0 2.0 210.0 211.0-2.0 85 CL Fores 190.0 191.0 188.0 190.0 1.0 193.0 194.0-3.0 85 CL Chucks UNQ UNQ N/A UNQ N/A 95 CL Bull, W. Coast 220.0 221.0 218.0 219.0 2.0 220.0 221.0 0.0 Uruguay CFH 90CL, E. Coast UNQ UNQ N/A UNQ N/A US East Coast, Trimmings, CIF 85 CL Trimmings 189.0 190.0 187.0 189.0 1.0 191.0 193.0-3.0 80 CL Trimmings 175.0 176.0 175.0 176.0 0.0 178.0 179.0-3.0 75 CL Trimmings UNQ UNQ N/A 167.0 170.0 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 275.0 270.0 275.0 0.0 280.0 285.0-10.0 Steer Insides 14/18 UNQ UNQ N/A UNQ N/A Steer Flats 225.0 235.0 225.0 230.0 5.0 235.0 240.0-5.0 Steer Knuckles 245.0 250.0 240.0 245.0 5.0 250.0 255.0-5.0

VOLUME 19, ISSUE 10 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 8-Mar-19 1-Mar-19 9-Mar-18 US East Coast Australian/NZ Lean, FOB US Port 95 CL Bull, E. Coast 231.0 232.0 231.0 232.0 0.0 230.0 231.0 1.0 90 CL Blended Cow 217.0 218.0 214.0 215.0 3.0 216.0 217.0 1.0 90 CL Shank 215.0 216.0 214.0 215.0 1.0 214.0 216.0 0.0 85 CL Fores 197.0 198.0 196.0 198.0 0.0 199.0 200.0-2.0 85 CL Chucks UNQ UNQ N/A UNQ N/A 95 CL Bull, W. Coast 230.0 231.0 228.0 230.0 1.0 228.0 229.0 2.0 Uruguay CFH 90CL, E. Coast UNQ UNQ N/A UNQ N/A US East Coast, Trimmings, FOB US Port 85 CL Trimmings 196.0 197.0 195.0 197.0 0.0 197.0 198.0-1.0 80 CL Trimmings 184.0 185.0 184.0 185.0 0.0 UNQ N/A 75 CL Trimmings UNQ UNQ N/A 172.0 173.0 N/A 65 CL Trimmings UNQ UNQ N/A 140.0 145.0 N/A US East Coast Australian Cuts, FOB US Port Cap Off Steer Insides 285.0 290.0 280.0 285.0 5.0 290.0 295.0-5.0 Steer Insides 14/18 UNQ UNQ N/A UNQ N/A Steer Flats 235.0 240.0 230.0 235.0 5.0 250.0 255.0-15.0 Steer Knuckles 260.0 265.0 255.0 260.0 5.0 255.0 260.0 5.0

VOLUME 19, ISSUE 10 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 8-Mar-19 1-Mar-19 9-Mar-18 Domestic Cutouts Low High Wt.Avg Low High Wt.Avg Low High Wt.Avg Choice Cutout 226.13 221.29 4.8 224.14 2.0 Select Cutout 218.78 216.79 2.0 217.26 1.5 Domestic Lean Grinding Beef 90 CL Boneless 211.0 220.0 214.3 210.9 215.5 212.3 1.9 215.7 222.0 217.5-3.3 85 CL Beef Trimmings 181.0 202.0 188.7 179.6 196.4 184.4 4.3 186.0 215.0 191.7-3.0 50 CL Beef Trim 78.0 78.0 75.1 76.8 76.8 70.5 4.5 100.7 100.7 84.2-9.2 Domestic Pork Trim 42 CL Pork Trim 18.1 37.0 22.7 20.1 33.5 22.7 0.0 27.5 49.3 33.0-10.3 72 CL Pork Trim 41.6 60.3 45.8 39.1 60.3 43.1 2.7 61.0 67.0 62.8-17.0 Point of Lean Values 90 CL Domestic 238.1 235.9 2.2 241.7-3.6 50 CL Beef Trimming 150.1 141.0 9.1 168.5-18.4 42 CL Pork Trim 54.1 54.1 0.0 78.6-24.5 72 CL Pork Trim 63.6 59.9 3.7 87.2-23.7 National Direct Fed Steer 128.15 126.51 1.6 126.75 1.4 (5-day accum. wt. avg. price)

VOLUME 19, ISSUE 10 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 8-Mar-19 1-Mar-19 9-Mar-18 Live Cattle Futures April '19 129.675 129.550 0.13 123.125 6.55 June '19 120.950 120.425 0.53 114.300 6.65 August '19 117.175 116.275 0.90 111.650 5.52 October '19 117.400 116.925 0.48 114.400 3.00 Feeder Cattle Futures April '19 143.925 145.050-1.13 143.150 0.78 May '19 147.700 146.525 1.17 144.650 3.05 August '19 148.525 151.400-2.88 149.750-1.22 September '19 152.700 152.150 0.55 149.750 2.95 Corn Futures March '19 354 3/4 364-9.25 383-28.25 May '19 364 1/4 373-8.75 390 1/2-26.25 July '19 373 1/2 381 1/2-8.00 398-24.50 September '19 380 1/4 387 1/4-7.00 402 1/2-22.25 Ch Wheat Futures March '19 432 3/4 454-21.25 489-56.25 May '19 439 1/2 457 1/4-17.75 489 1/4-49.75 July '19 447 1/2 463 1/4-15.75 505 1/2-58.00 September '19 457 473-16.00 522-65.00 From Last Slaughter Information 7 Days Ending 7 Days Ending Week 7 Days Ending From Last Year 9-Mar-19 2-Mar-19 10-Mar-18 Total Cattle Slaughter 603,000 603,000 0 599,000 4,000 23-Feb-19 16-Feb-19 24-Feb-18 Total Cow Slaughter 127,162 127,332-170 117,441 9,721 Dairy Cow Slaughter 71,587 70,156 1,431 63,098 8,489 Beef Cow Slaughter 55,575 57,176-1,601 54,343 1,232

VOLUME 19, ISSUE 10 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 March 2, 2019 Individual Country Volume. MT & Y/Y % Ch. 60,000 50,000 YTD Imported Fresh/Frz Beef Passed for Entry in the US week 9 3/3/2018 3/2/2019 Argentina - - Australia 32,347 32,857 510 1.6% Brazil - - - Canada 41,299 50,014 8,715 21.1% Chile - - - Costa Rica 1,484 1,703 219 14.8% France - - - Honduras 321 334 13 4.0% Ireland 509 786 277 54.4% Japan 153 183 30 19.6% Mexico 34,375 38,145 3,770 11.0% Netherlands - - - New Zealand 39,009 25,532 (13,477) -34.5% Nicaragua 8,829 11,478 2,649 30.0% Spain - - - Uruguay 4,483 6,757 2,274 50.7% Total 162,809 167,790 4,981 3.1% Source: AMS - USDA 2017 2018 2019 TOTAL YTD: +3.1% Total 170,000 165,000 40,000 160,000 30,000 155,000 20,000 150,000 10,000 145,000-140,000 Total 2% 21% 11% -35% 30% 51% 3.1%

VOLUME 19, ISSUE 10 US IMPORTED BEEF MARKET PAGE 10 Australian Beef Quota Position Metric Ton. Australian Department of Agriculture Statistics 7-Mar-19 Quota Shipments 60,365 14.1% 2019 Quota 428,214 Balance 367,849 85.9% USA Quota Entries through Week Ending March 4 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 30,516,567 40,144,656 2,295,770 11,687,071 29,663,222 23,755,263 3,348,415 12,818,953-3% -41% 46% 10% 418,214,000 213,402,000 20,000,000 64,805,000 7% 11% 17% 20% Note: Customs did not provide an update this week. Data reflects last week s levels.