US Imported Beef Market A Weekly Update

US Imported Beef Market A Weekly Update Prepared Exclusively for Meat & Livestock Australia - Sydney Volume XVIII, Issue 33 August 31, 2018 Prepared by: Steiner Consulting Group SteinerConsulting.com 800-526-4612 service@steinerconsulting.com Market Highlights for the Week: USDA announces another case of atypical BSE in a Florida cow but markets shrug it off as it is not expected to impact domestic or export demand Participants continue to debate the implications of spreading African Swine Fever in China and the potential impact this has not just on pork supplies but also demand for other proteins, especially beef China and Hong Kong now account for half of exports from major South American beef suppliers Cow and bull slaughter last week was estimated at 131,000 head, 5.4% higher than a year ago and 11.4% higher than the five year average. Fed cattle slaughter for the week was estimated at 505,000 head, 1.2% higher than a year ago and 4.3% higher than a year ago In the four weeks ending August 23 US exports of fresh/frozen beef muscle cuts averaged 17,481 MT/week, 781 MT or 4.5% higher than the same four week period a year ago Fed steer weights remain close to year ago levels but September marketings remain key to maintain currentness. Imported Market Activity for the Week Trading in the imported beef market was fairly quiet this week as end users were largely focused on the Labor Day production schedules and seemed to have limited interest in booking forward loads. Offerings from Australia have been relatively limited, with overseas suppliers largely focused on Asian markets and offerings there that are notably above US values. This is especially true for fat trim. US fat trim values are now under pressure as 50CL prices are down as much as 30% from earlier in the month. US fed cattle slaughter is expected to remain high through early October and steer weights seasonally increase during this time of year (see discussion on weights on page 3). Market participants we contacted during the week continue to discuss the implications that the spread of African Swine Fever (ASF) in China will have on global beef demand. Two recent cas- China and Hong Kong Exports as % of All Country's Beef Exports Based on YTD Export Data. Data collected by Steiner Consulting Based on Official Statistics 60.0% China Beef Consumption: Domestic Source + Imports Source: USDA-FAS. Pounds per Person in Carcass Wt. Equivalent 16.0 50.0% Hong Kong China 14.0 Imported Beef Domestic Beef 40.0% 12.0 10.0 30.0% 8.0 20.0% 6.0 10.0% 4.0 0.0% Brazil Argentina Uruguay Australia N. Zealand USA Canada S. America Oceania N. America 2.0 0.0

VOLUME XVIII, ISSUE US IMPORTED BEEF MARKET PAGE 2 es of ASF bring the number of outbreaks to six. The latest was announced on Sunday (US time) in Xuancheng City, Anhui Province. Beef demand in China has increased at a faster pace than domestic production and the country has had to increasingly rely on imports to fill the growing demand. Currently China is the second largest beef importer in the world, after the USA, and it is expected to become the largest importer in 2019. Combined China and Hong Kong demand account for about half of South American beef exports this year and it is likely that share will increase further in 2019. As China has tightened controls of gray trade in recent months buyers have had to become more active in Oceania, with almost 25% of all New Zealand exports and over 13% of Australian exports now going to the Chinese market. Australian slaughter has increased this year but much of the growth has gone to support Chinese demand. Noone knows how ASF will impact Chinese pork production and all impact analyses rely on that initial estimate of production losses. This is the first time ASF has entered China so history is no guide. In 2007 the spread of blue ear disease in the Chinese hog population caused pork production to decline 8% according to USDA. Given the lethality of ASF and the fact there is no vaccine it is possible the decline in production may exceed those of a decade ago. However, the Chinese industry has become more commercialized in the past decade and arguably has better safaguards in place. Again, no one really knows but the risk is clear. What is also a fair point is that beef demand in China may receive a further boost due to a) the shortfall in pork supply availability and b) fears about safety of domestic pork supply. USA market highlights for the week: Last week USDA announced a case of BSE in a six year old cow in Florida. The announcement had little impact on futures trading as participants did not expect this finding to impact domestic or export markets. As it did a year ago, South Korea announced that it would enhance testing of US beef but trade will continue as usual. Non fed cattle slaughter continues to run well above year ago levels. The main challenge for cow slaughter this fall will be slaughter capacity. Last week cow and bull slaughter was estimated at 131,000 head, 5.4% higher than a year WEEKLY COW & BULL SLAUGHTER. '000 HEAD Source: USDA 140 135 130 125 120 115 110 105 100 95 90 5-Yr Avg. 2016 2017 2018 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Ratio of 90CL Boneless Beef Price vs. Calculated Value of Cutter Cutout Weekly USDA Price Data. Analysis by Steiner Consulting 1.30 1.29 1.28 1.27 1.26 1.25 1.24 1.23 1.22 1.21 1.20 2015 2016 2017 2018 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov De ago and 11.4% higher than the five year average. In the last six weeks non-fed cattle slaughter in the US has been 14% above the five year average. 90CL boneless beef prices have been quite firm for much of the summer but overall value remains in line with the value of cow cuts. Demand for lean beef continues to drive prices for both 90CL boneless beef and cow cuts. Fed cattle slaughter last week was estimated at 505,000 head, about the same as the previous week and 1.2% higher than a year ago. Fed cattle prices were lower towards the end of last week. With August being a delivery month for the fed cattle contract the lower cash prices caused August futures to decline 300 points as cash and future contract prices need to converge. However, prices for October and December were not impacted as much. In the short term there may be some downward pressure on fed cattle values as retailers look to diversify their meat offerings. Pork and chicken prices are running some 25-

VOLUME XVIII, ISSUE US IMPORTED BEEF MARKET PAGE 3 30% under year ago levels and offer significant value to the consumer. On feed supplies on August 1 were up 4.6% from a year ago and we estimate that fed cattle slaughter in August was flat to as much as 1% lower than a year ago. Feedlots will need to market cattle more aggressively in September in order to stay current. In the four weeks ending August 23 total beef exports averaged 17,481 MT/wek, 781 MT or 4.5% higher than the same four week period a year ago. Some markets continue to far outperform year ago. Shipments to South Korea in the last four weeks have averaged 4,863 MT/ wk, 1,188 MT or 32% higher than a year ago. Japan remains the top market for US beef and in the last four weeks shipments have averaged 6,027 MT/wk, 5% higher than last year s already lofty levels. Net sales to Japan in the most current reported week (Aug 23) were 8,873 MT, well ahead of the weekly shipment pace. Net sales to Korea slowed down, however, at 3,949 MT. Total net sales for the week were 20,636 MT and in the last three weeks net beef sales have averaged near 21,000 MT, much higher than the level of weekly shipments either this year or last. The higher sales should continue to bolster beef shipments in the coming weeks and packers will continue to source cattle in order to cover those sales. Last year beef shipments in Sep/Oct/Nov averaged around 15,700 MT/wk. and we are currently on track to remain well above those levels. Steer weights in the last USDA report (Aug 18) were 886 pounds (dressed carcass), just 2 pounds or 0.2% higher than the same week a year ago. We think weights have continued to move higher the last two weeks but they are still close to 2017 levels. We think the average steer weight at the end of this week will be close to 890 pounds, this is about 4 pounds heavier than two weeks ago but still in line with year ago levels. The steer weight data suggests that feedlots remain current. Last year, higher retail features, strong forward sales and robust packer margins allowed for a high marketing rate. This kept steer weights in check through much of the fall and set the stage for very robust cattle prices going into the yearend holidays. Marketings in September will be critical once again. Memories of 2015 and 2016 are still fresh. During the fall of those two years producers simply lost ground in Export Shipments of Fresh/Frozen Muscle Cuts of Beef: All Markets Based on USDA Weekly Export Data. Source: USDA-FAS 23,000 21,000 19,000 17,000 15,000 13,000 11,000 9,000 7,000 5,000 million lb. product wt. 2016 2017 2018 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Actual USDA Weekly Steer Weights. Reported with a Two week lag + Steiner Estimate Source: USDA & Steiner Consulting Estimates DRESSED WEIGHTS, POUNDS 920 910 900 890 880 870 860 850 840 830 820 2016 2017 2018 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec terms of currentness, there were more lower yielding cattle in the mix and cattle prices struggled to gain traction. Fed cattle weights this year have been very close to year ago so any increase in beef production has come from slaughter numbers rather than additional weight on the carcass. Using weekly data we calculate that between July 1 and Aug 18 total fed beef production (steers+heifers) was 3.009 billion pounds, a relatively modest 1.5% increase compared to a year ago. Weights contributed just 0.2% to this increase, the rest is accounted by higher slaughter numbers. Slaughter numbers are expected to increase into the fall, a function of higher cattle on feed. But if weights stay in check, this will tend to limit the overall increase in supply. Est 2013-17 Avg. 2012

VOLUME XVIII, ISSUE 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 30-Aug-18 23-Aug-18 29-Aug-17 from Last Year CME FEEDER CATTLE INDEX 149.98 150.85-0.6% 143.34 4.6% 31-Aug-18 24-Aug-18 1-Sep-17 FED STEER (5-MKT AVG) 107.02 109.55-2.3% 106.74 0.3% CUTTER COW CARCASS, NATIONAL, 90% LEAN, 350-400 LB. (carcass wt.) 102.00 105.00-2.9% 109.00-6.4% BONER COW CARCASS, NATIONAL, 85% LEAN, 400-500 LB. (carcass wt.) 102.50 104.00-1.4% 116.50-12.0% BREAKER COW CARCASS, NATIONAL, 75% LEAN, 500+ (carcass wt.) 98.50 100.50-2.0% 110.00-10.5% CUTTER COW CARCASS CUTOUT, 5-DAY MA, USDA 169.95 168.62 0.8% 154.79 9.8% 260 CME Feeder Cattle Index 240 220 200 180 160 140 120 100 80 60 Source: Chicago Mercantile Exchange

VOLUME XVIII, ISSUE 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 31-Aug-18 24-Aug-18 1-Sep-17 US East Coast Australian/NZ Lean, CIF 95 CL Bull, E. Coast 200.0 201.0 200.0 201.0 0.0 215.0 220.0-19.0 90 CL Blended Cow 190.0 191.0 190.0 191.0 0.0 200.0 201.0-10.0 90 CL Shank 190.0 191.0 190.0 192.0-1.0 200.0-9.0 85 CL Fores 179.0 180.0 178.0 180.0 0.0 185.0 190.0-10.0 85 CL Chucks UNQ UNQ N/A UNQ N/A 95 CL Bull, W. Coast 200.0 200.0 0.0 215.0 218.0-18.0 Uruguay CFH 90CL, E. Coast UNQ UNQ N/A UNQ N/A US East Coast, Trimmings, CIF 85 CL Trimmings 177.0 179.0 177.0 178.0 1.0 185.0 188.0-9.0 80 CL Trimmings 163.0 165.0 165.0 166.0-1.0 175.0 177.0-12.0 75 CL Trimmings 154.0 156.0 155.0 156.0 0.0 164.0 165.0-9.0 65 CL Trimmings UNQ UNQ N/A 115.0 117.0 N/A US East Coast Australian Cuts, CIF Cap Off Steer Insides 270.0 275.0 270.0 275.0 0.0 270.0 275.0 0.0 Steer Insides 14/18 UNQ UNQ N/A UNQ N/A Steer Flats UNQ UNQ N/A 220.0 230.0 N/A Steer Knuckles 235.0 240.0 235.0 240.0 0.0 240.0 0.0

VOLUME XVIII, ISSUE 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 31-Aug-18 24-Aug-18 1-Sep-17 US East Coast Australian/NZ Lean, FOB US Port 95 CL Bull, E. Coast 212.0 215.0 212.0 213.0 2.0 228.0 232.0-17.0 90 CL Blended Cow 198.0 200.0 198.0 199.0 1.0 210.0 213.0-13.0 90 CL Shank 198.0 200.0 198.0 200.0 0.0 210.0 211.0-11.0 85 CL Fores 184.0 185.0 184.0 185.0 0.0 200.0 201.0-16.0 85 CL Chucks UNQ UNQ N/A UNQ N/A 95 CL Bull, W. Coast 210.0 212.0 211.0 212.0 0.0 228.0 230.0-18.0 Uruguay CFH 90CL, E. Coast UNQ UNQ N/A UNQ N/A US East Coast, Trimmings, FOB US Port 85 CL Trimmings 183.0 184.0 184.0 0.0 199.0 200.0-16.0 80 CL Trimmings 171.0 172.0 172.0 173.0-1.0 184.0 185.0-13.0 75 CL Trimmings 158.0 159.0 159.0 160.0-1.0 171.0 172.0-13.0 65 CL Trimmings UNQ UNQ N/A 120.0 123.0 N/A US East Coast Australian Cuts, FOB US Port Cap Off Steer Insides 275.0 280.0 275.0 280.0 0.0 275.0 280.0 0.0 Steer Insides 14/18 UNQ UNQ N/A UNQ N/A Steer Flats UNQ UNQ N/A 230.0 235.0 N/A Steer Knuckles 248.0 250.0 250.0 0.0 250.0 255.0-5.0

VOLUME XVIII, ISSUE 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 31-Aug-18 24-Aug-18 1-Sep-17 Domestic Cutouts Low High Wt.Avg Low High Wt.Avg Low High Wt.Avg Choice Cutout 209.69 214.37-4.7 191.72 18.0 Select Cutout 201.27 203.99-2.7 191.12 10.2 Domestic Lean Grinding Beef 90 CL Boneless 204.0 216.0 210.0 204.0 222.0 211.2-1.2 226.0 235.0 231.3-21.3 85 CL Beef Trimmings 166.0 176.0 172.0 169.0 181.3 171.7 0.3 178.0 204.0 194.8-22.8 50 CL Beef Trim 94.3 94.3 68.9 100.8 100.8 87.0-18.1 67.5 67.5 54.0 14.9 Domestic Pork Trim 42 CL Pork Trim 20.8 40.0 27.9 24.7 47.1 29.4-1.5 30.2 45.4 35.0-7.1 72 CL Pork Trim 35.1 58.4 41.8 36.9 73.8 43.6-1.9 57.0 61.4 59.8-18.1 Point of Lean Values 90 CL Domestic 233.3 234.6-1.3 257.0-23.7 50 CL Beef Trimming 137.8 173.9-36.1 108.0 29.8 42 CL Pork Trim 66.4 69.9-3.5 83.4-17.0 72 CL Pork Trim 58.0 60.6-2.6 83.1-25.1 National (5 day accum. Direct wt. Fed avg. Steer 107.02 109.55-2.5 106.74 0.3 price)

VOLUME XVIII, ISSUE 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 31-Aug-18 24-Aug-18 1-Sep-17 Live Cattle Futures August '18 106.250 109.425-3.18 105.650 0.60 October '18 106.700 110.875-4.18 106.175 0.53 December '18 111.200 114.625-3.43 109.100 2.10 February '19 114.600 118.025-3.43 111.325 3.27 Feeder Cattle Futures August'18 149.200 150.950-1.75 141.625 7.57 September '18 147.475 151.825-4.35 141.900 5.57 October '18 146.725 151.850-5.13 141.700 5.03 November '18 146.975 151.650-4.68 141.700 5.28 Corn Futures September '18 348 1/2 364 1/4-15.75 342 6.50 December '18 362 3/4 378 3/4-16.00 355 3/4 7.00 March '19 375 390 3/4-15.75 368 1/4 6.75 May '19 382 1/4 397 3/4-15.50 374 3/4 7.50 Ch Wheat Futures September '18 515 3/4 560 1/2-44.75 403 1/4 112.50 December '18 536 1/2 579 3/4-43.25 430 106.50 March '19 559 1/2 601 1/2-42.00 453 106.50 May '19 571 1/2 611-39.50 467 3/4 103.75 From Last Slaughter Information 7 Days Ending 7 Days Ending Week 7 Days Ending From Last Year 1-Sep-18 25-Aug-18 2-Sep-17 Total Cattle Slaughter 636,000 660,000-24,000 645,000-9,000 18-Aug-18 11-Aug-18 19-Aug-17 Total Cow Slaughter 121,389 120,098 1,291 110,508 10,881 Dairy Cow Slaughter 60,562 60,948-386 57,088 3,474 Beef Cow Slaughter 60,827 59,150 1,677 53,420 7,407

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 34 8/26/2017 8/25/2018 Australia 151,161 149,482 (1,679) -1.1% Brazil 9,022 - (9,022) -100.0% Canada 168,783 181,452 12,669 7.5% Chile 202 - (202) -100.0% Costa Rica 5,578 5,551 (27) -0.5% France - - - Honduras 208 1,181 973 467.8% Ireland 1,430 1,579 149 10.4% Japan 231 301 70 30.3% Mexico 120,563 130,289 9,726 8.1% Netherlands 228 - (228) -100.0% New Zealand 150,890 159,571 8,681 5.8% Nicaragua 29,549 33,842 4,293 14.5% Spain - - - Uruguay 26,102 23,486 (2,616) -10.0% Total 663,947 686,733 22,786 3.4% Source: AMS - USDA US Beef Imports. Metric Ton. Data Source: USDA/Agricultural Marketing Service Imports as of August 25, 2018 Individual Country Volume. MT & Y/Y % Ch. 250,000 200,000 2016 2017 2018 TOTAL YTD: + 3.3% Total 720,000 710,000 700,000 150,000 690,000 680,000 100,000 670,000 660,000 50,000 650,000-640,000 630,000 Total -1% 8% 8% 6% 15% -10% 3.4%

VOLUME XVIII, ISSUE US IMPORTED BEEF MARKET PAGE 10 Australian Beef Quota Position Metric Ton. Australian Department of Agriculture Statistics 30-Aug-18 Quota Shipments 174,739 58.7% 2018 Quota 423,214 41.3% Balance 248,475 USA Quota Entries through Week Ending August 27 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 146,325,521 147,363,358 15,237,094 46,043,822 149,133,766 159,801,232 14,225,249 44,679,138 2% 8% -7% -3% 418,214,000 213,402,000 20,000,000 64,805,000 36% 75% 71% 69%