US Imported Beef Market A Weekly Update

US Imported Beef Market A Weekly Update Prepared Exclusively for Meat & Livestock Australia - Sydney Volume XVIII, Issue 4 February 2, 2018 Prepared by: Steiner Consulting Group SteinerConsulting.com 800-526-4612 service@steinerconsulting.com Market Highlights for the Week: US cattle inventory on January 1 was 94.399 million head, 0.7% higher than a year ago and the largest US cattle inventory since 2009 CME fed cattle futures rallied sharply following the release of the inventory report as key numbers were below expectations, especially the inventory of all cattle on feed The USDA survey pegged the calf crop for 2017 at 35.8 million head, 2% higher than last year but half a million head less than the initial estimate of the calf crop reported last July The US cow herd on January 1 was 41.2 million head, 1.6% higher than a year ago and implying another increase in the US calf crop during 2018 and higher beef production in 2019 Imported beef prices were higher once again this week on limited offerings from overseas suppliers, particularly New Zealand, and the rally in US fed cattle futures The price of 50CL beef trim continues to defy expectations on good retail ground beef demand, higher exports of fatty cuts but also end users that look to secure more product ahead of spring demand US fed cattle slaughter for the week was 498,000 head, 6% higher than the previous year while non fed slaughter was 131,000 head, 3.7% higher than a year ago Imported Market Activity for the Week Imported beef prices continued to climb higher this week as offerings from overseas suppliers, particularly from New Zealand, continue to fall short of expectations. Moisture conditions in New Zealand have improved considerably and this has limited supply availability. Packers in New Zealand are looking to fill orders that they took back in December when slaughter rocketed higher and do not seem interested to chase US bids. The weaker US dollar further complicates matters although some market participants think that dynamic may change following the big swing in exchange rates on Friday. The USD per 1AUD was hovering at around 0.81 earlier in the week but dropped to 0.7935, one of the biggest two day corrections of the last 12 months (a decline means fewer USD needed to buy 1 AUD and it also implies higher returns for Australian packers deriving revenue in USD) US Cow Herd and Herd Expansion Outlook Source: USDA/NASS mil head 46.000 US COW INVENTORY January 1 US Beef + Dairy Cow Inventories. USDA mil head 7,000 US BEEF COW REPLACEMENT HEIFERS January 1 Inventories. USDA. '000 Head 45.000 44.000 6,500 43.000 42.000 Jan 2018 41.1 6,000 Jan 2018 6,131 41.000 5,500 40.000 39.000 38.000 37.000 Jan 2014 38.3 5,000 4,500 Jan 2011 5,135 36.000 4,000

VOLUME XVIII, ISSUE 4 US IMPORTED BEEF MARKET PAGE 2 US Cattle Inventory & Its Implications The US cattle inventory on January 1 was 94.399 million head, 0.7% higher than a year ago. Prior to the report analysts were expecting a 1.3% increase. This is the largest cattle inventory number since 2009 but the shortfall reflects a smaller than expected calf crop and indicates that cattle industry expansion has slowed down significantly in the last 12 months. Cow numbers (see charts on page 1) are always a key factor to watch and the inventory was slightly under expectations. Prior to the report analysts expected the beef cow herd to be 1.8% larger than the previous year. According to USDA the beef cow herd on January 1 was 31.723 million head, 510,000 head (+1.6%) larger than a year ago. Estimating cow slaughter for the year will depend in part on the inventory at the start of the year as well as weather conditions and overall industry profitability. Ample grass conditions and strong cow-calf producer margins encouraged cow herd expansion during 2015, 2016 and 2017. We expect the cow slaughter to increase in 2018, in part because the cow herd is larger but also due to increased drought pressure and lower calf prices. Our current forecast is for total cow slaughter to be up 4.4% in 2018 following a 6.3% increase in 2017. If drought conditions worsen, we could see slaughter accelerate and the high end of our forecast has cow slaughter up 11% compared to a year ago. Robust beef demand and good pasture conditions could cause slaughter to be up only around 2% for the year. Heifer retention in the past two years has bolstered the cow herd but it appears that expansion is quickly coming to an end. According to USDA cowcalf operators have retained 3.7% fewer heifers for beef cow herd rebuilding in 2018. The lower heifer retention number will not by itself change the outlook for the beef cow herd in the short term. However, a lower retention number coupled with a potential increase in beef cow slaughter due to drought this summer (higher chance of La Nina) is likely to put the brakes on cow herd inventory growth. Relationship of Jan. 1 Cow Inv. & Annual Calf Crop 40,000 y = 1.115x - 9359.2 1999 39,000 R² = 0.9519 2000 1998 2002 38,000 2001 2004 2003 37,000 2005 2006 2007 2010 36,000 2008 2016 2011 2009 35,000 2015 2012 34,000 2013 33,000 2014 38,000 39,000 40,000 41,000 42,000 43,000 44,000 Steer Slaughter vs. Annual Calf Crop (1-Yr Prior) Source: USDA & Steiner Consulting Estimates for 2018 Calf Crop Calf Crop ('000) Steer Sltr ('000) 40,000 39,000 38,000 37,000 36,000 35,000 34,000 33,000 32,000 Calf Crop Comparing US Cattle Cycles of the Last +50 Years Y/Y in Cattle Inventories. 6.0% 4.0% 2.0% 0.0% -2.0% -4.0% -6.0% Steer Sltr 0 +1 +2 +3 +4 +5 +6 +7 +8 +9 +10 +11 +12 +13 +14 # of years from the start of the cycle 1958-1967 1967-1979 1979-1990 1990-2004 2014 - Current 18,200 17,800 17,400 17,000 16,600 16,200 15,800 15,400 15,000 The cow inventory number determines the calf crop and ultimately beef production down the road. The 2017 calf crop was estimated at 35.808 million head, 715,000 head larger than the previous year. USDA expects beef production to expand by 6% in 2018. We are not as aggressive in our forecast, in part because of the calf crop data, and expect production to be about 1.5 points lower than USDA. The supply of feeder cattle outside feedlots on January 1 was 28.358 million head, 2.1% lower than a year ago. This is the first decline in the feeder cattle supply since 2015 and implies a lower placement rate in the next three months. The top chart in this page shows the relationship between the cow inventory on January 1 and the calf crop for the year. The relationship is quite strong and the current cow inventory implies continued increases in the US calf crop in 2018. By our

VOLUME XVIII, ISSUE 4 US IMPORTED BEEF MARKET PAGE 3 estimate the calf crop in 2018 is expected to increase between 1.7% and 2.1% this year, with a midpoint of 1.9%. The second chart in the previous page also shows the relationship of the calf crop in year 1 vs. steer slaughter in year 2. While steer slaughter and the calf crop will be directionally correlated, there are plenty of factors that may impact how and when producers finish their cattle and bring them to market. Drought conditions may induce producers to accelerate the sale of light calves to feedlots and those steers may come to market relatively quickly (sometimes 14-15 months of age). However, when pastures are plentiful cow-calf operators have an opportunity to put more pounds on animals outside of feedlots and there will be more cattle that are +1 year of age when they enter the feedlot. You will notice that we derived the correlation between steer slaughter and the calf crop rather than total fed slaughter. That s because during times of herd rebuilding producers will retain more heifers and thus heifer slaughter may decline even as calf supplies increase. The reverse happens when producers decide to stop expanding or start to liquidate their herds. Domestic Price Summary Prices for domestic 90CL boneless beef were quoted at 217 US cents on the top side, about the same as a week ago and 7 cents higher than year ago levels. The weighted average price tonight was quoted at 216 cents, 1 cents lower than a week ago. 85CL beef trim price on the top side was quoted tonight at 194 cents, 4 cent higher compared to last week and 6 cents higher than a year ago. 50CL beef price was 95 cents on the high side, 2 cent higher than last week and 18 cents higher than last year. Prices for fat beef trim on a weighted average basis were 93 cents, 5 cents higher than last week Pork prices continue to trade much higher than year ago levels as slaughter has been significantly less than expected and only slightly above year ago. Pork trim demand has been notably better than expected this fall, with higher premiums for both lean (72CL) and fat (42CL) pork. Bottom line: The US cattle cycle remains in an expansionary phase but that expansion is quickly coming to a close. Moisture conditions this spring and summer will be key. Producers have already decided to retain fewer heifers for herd rebuilding. A potential drought (see map above) could force them to liquidate some of their cow inventory. This could lead to a beef cow herd on January 1, 2019 that is either flat or possibly lower than it was on January 1, 2018.

VOLUME XVIII, ISSUE 4 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 25-Jan-18 18-Jan-18 24-Jan-17 from Last Year CME FEEDER CATTLE INDEX 0.00 0.00 #DIV/0! 133.32-100.0% 26-Jan-18 19-Jan-18 25-Jan-17 FED STEER (5-MKT AVG) 122.90 119.08 3.2% 121.85 0.9% CUTTER COW CARCASS, NATIONAL, 90% LEAN, 350-400 LB. (carcass wt.) 104.00 100.50 3.5% 100.50 3.5% BONER COW CARCASS, NATIONAL, 85% LEAN, 400-500 LB. (carcass wt.) 102.50 103.00-0.5% 110.00-6.8% BREAKER COW CARCASS, NATIONAL, 75% LEAN, 500+ (carcass wt.) 97.50 94.50 3.2% 105.00-7.1% CUTTER COW CARCASS CUTOUT, 5-DAY MA, USDA 171.93 170.10 1.1% 154.79 11.1% 260 CME Feeder Cattle Index 240 220 200 180 160 140 120 100 80 60 Source: Chicago Mercantile Exchange

VOLUME XVIII, ISSUE 4 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 2-Feb-18 26-Jan-18 1-Feb-17 US East Coast Australian/NZ Lean, CIF 95 CL Bull, E. Coast 220.0 223.0 217.0 219.0 4.0 214.0 215.0 8.0 90 CL Blended Cow 208.0 210.0 207.0 208.0 2.0 202.0 203.0 7.0 90 CL Shank 209.0 210.0 208.0 209.0 1.0 204.0 205.0 5.0 85 CL Fores 191.0 194.0 190.0 194.0 0.0 181.0 183.0 11.0 85 CL Chucks UNQ UNQ N/A UNQ N/A 95 CL Bull, W. Coast 220.0 221.0 216.0 218.0 3.0 212.0 213.0 8.0 Uruguay CFH 90CL, E. Coast UNQ UNQ N/A UNQ N/A US East Coast, Trimmings, CIF 85 CL Trimmings 190.0 192.0 189.0 191.0 1.0 180.0 181.0 11.0 80 CL Trimmings 167.0 168.0 167.0 168.0 0.0 160.0 164.0 4.0 75 CL Trimmings 160.0 162.0 UNQ N/A 148.0 150.0 12.0 65 CL Trimmings UNQ UNQ N/A 101.0 103.0 N/A US East Coast Australian Cuts, CIF Cap Off Steer Insides 285.0 290.0 285.0 290.0 0.0 270.0 275.0 15.0 Steer Insides 14/18 UNQ UNQ N/A UNQ N/A Steer Flats UNQ UNQ N/A 220.0 225.0 N/A Steer Knuckles 245.0 250.0 245.0 250.0 0.0 230.0 235.0 15.0

VOLUME XVIII, ISSUE 4 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 2-Feb-18 26-Jan-18 1-Feb-17 US East Coast Australian/NZ Lean, FOB US Port 95 CL Bull, E. Coast 232.0 235.0 230.0 231.0 4.0 223.0 224.0 11.0 90 CL Blended Cow 220.0 221.0 218.0 219.0 2.0 210.0 212.0 9.0 90 CL Shank 218.0 219.0 216.0 218.0 1.0 211.0 213.0 6.0 85 CL Fores 200.0 201.0 199.0 200.0 1.0 190.0 191.0 10.0 85 CL Chucks UNQ UNQ N/A UNQ N/A 95 CL Bull, W. Coast 231.0 233.0 229.0 230.0 3.0 221.0 222.0 11.0 Uruguay CFH 90CL, E. Coast UNQ UNQ N/A UNQ N/A US East Coast, Trimmings, FOB US Port 85 CL Trimmings 199.0 200.0 197.0 199.0 1.0 189.0 190.0 10.0 80 CL Trimmings 174.0 175.0 174.0 175.0 0.0 171.0 172.0 3.0 75 CL Trimmings 170.0 172.0 UNQ N/A 155.0 156.0 16.0 65 CL Trimmings UNQ UNQ N/A 112.0 115.0 N/A US East Coast Australian Cuts, FOB US Port Cap Off Steer Insides 295.0 300.0 295.0 300.0 0.0 275.0 280.0 20.0 Steer Insides 14/18 UNQ UNQ N/A UNQ N/A Steer Flats UNQ UNQ N/A 225.0 230.0 N/A Steer Knuckles 255.0 260.0 255.0 260.0 0.0 240.0 245.0 15.0

VOLUME XVIII, ISSUE 4 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 Domestic Cutouts 2-Feb-18 26-Jan-18 1-Feb-17 Choice Cutout 209.10 206.83 2.3 193.75 15.4 Select Cutout 203.45 201.83 1.6 190.85 12.6 Domestic Lean Grinding Beef 90 CL Boneless 215.6 217.0 216.7 216.7 0.3 204.0 210.0 7.0 85 CL Beef Trimmings 183.0 194.4 181.2 190.8 3.6 181.0 188.0 6.3 50 CL Beef Trim 92.0 94.8 84.8 92.8 2.0 73.0 77.3 17.5 Domestic Pork Trim 42 CL Pork Trim 26.6 37.3 25.2 37.3 0.0 23.0 35.3 2.0 72 CL Pork Trim 67.5 87.3 70.2 91.3-4.0 62.0 81.3 6.0 Point of Lean Values 90 CL Domestic 241.1 240.7 0.4 233.3 7.8 50 CL Beef Trimming 189.5 185.5 4.0 154.5 35.0 42 CL Pork Trim 88.7 88.7 0.0 83.9 4.8 72 CL Pork Trim 121.2 126.7-5.6 112.8 8.3 National Direct Fed Steer 126.16 122.90 3.3 121.10 5.1 (5-day accum. wt. avg. price)

VOLUME XVIII, ISSUE 4 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 2-Feb-18 26-Jan-18 1-Feb-17 Live Cattle Futures February '18 126.850 124.600 2.25 115.575 11.28 April '18 126.125 124.625 1.50 113.700 12.43 June '18 118.000 116.175 1.83 104.225 13.78 August '18 114.975 113.050 1.93 100.225 14.75 Feeder Cattle Futures March '18 150.925 146.725 4.20 122.075 28.85 April '18 151.775 147.225 4.55 121.725 30.05 May '18 151.775 147.050 4.72 120.625 31.15 August'18 154.075 150.050 4.02 120.625 33.45 Corn Futures March '18 361 1/2 356 1/2 5.00 368 1/4-6.75 May '18 369 1/2 365 4.50 375 3/4-6.25 July '18 377 1/4 373 1/4 4.00 382 3/4-5.50 September '18 384 1/2 380 3/4 3.75 389 1/4-4.75 Ch Wheat Futures March '18 446 3/4 441 5.75 433 3/4 13.00 May '18 459 3/4 453 3/4 6.00 446 13.75 July '18 473 1/2 466 1/2 7.00 459 3/4 13.75 September '18 487 1/2 480 1/4 7.25 474 13.50 From Last Slaughter Information 7 Days Ending 7 Days Ending Week 7 Days Ending From Last Year 3-Feb-18 27-Jan-18 4-Feb-17 Total Cattle Slaughter 629,000 588,000 41,000 596,000 33,000 20-Jan-18 13-Jan-18 21-Jan-17 Total Cow Slaughter 123,824 125,337-1,513 113,634 10,190 Dairy Cow Slaughter 68,120 65,680 2,440 62,880 5,240 Beef Cow Slaughter 55,704 59,657-3,953 50,754 4,950

VOLUME XVIII, ISSUE 4 US IMPORTED BEEF MARKET PAGE 9 TABLE 7 - US BEEF IMPORTS (Source: USDA/AMS) YTD Imported Fresh Beef Passed for Entry in the US week 4 1/28/2017 1/27/2018 Australia 16,934 16,183 (751) -4.4% Brazil 291 - Canada 14,130 17,444 3,314 23.5% Chile 23 - (23) -100.0% Costa Rica 582 520 (62) -10.7% Honduras - 151 151 Japan 23 109 86 373.9% Ireland 192 311 119 62.0% Mexico 14,413 14,079 (334) -2.3% Netherlands - - New Zealand 13,270 14,902 1,632 12.3% Nicaragua 3,378 3,760 382 11.3% Uruguay 2,512 1,996 (516) -20.5% Total 65,787 69,456 3,669 5.6% US Beef Imports. Metric Ton. Data Source: USDA/Agricultural Marketing Service Imports as of January 27, 2018 Individual Country Volume. MT & Y/Y % Ch. Total 35,000 100,000 30,000 25,000 20,000 15,000 10,000 5,000 2016 2017 2018 TOTAL YTD: +5.6% 90,000 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 - - Total -4% 23% -2% 12% 11% -21% 5.6%

VOLUME XVIII, ISSUE 4 US IMPORTED BEEF MARKET PAGE 10 Australian Beef Quota Position Metric Ton. Australian Department of Agriculture Statistics Balance 391,943 92.6% 7.4% 2018 Quota 423,214 31-Jan-18 Quota Shipments 31,271 USA Quota Entries through Week Ending January 29 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 16,760,184 14,116,347 1,265,193 4,401,342 15,072,442 16,452,411 1,221,674 4,896,526-10% 17% -3% 11% 418,214,000 213,402,000 20,000,000 64,805,000 4% 8% 6% 8%