US Imported Beef Market A Weekly Update

US Imported Beef Market A Weekly Update Prepared Exclusively for Meat & Livestock Australia - Sydney Volume XVII, Issue 15 April 19, 2017 P r e p a r e d b y : S t e i n e r C o n s u l t i n g G r o u p S t e i n e r C o n s u l t i n g. c o m 8 0 0-526- 4 6 1 2 s e r v i c e @ s t e i n e r c o n s u l t i n g. c o m Market Highlights for the Week: Imported beef prices were firm once again this week Supplies from New Zealand remain underwhelming and market participants debating whether New Zealand will make up the shortfall we saw in March or if slaughter will be down more than earlier expected Australia shipments to the US in April could be down by almost 50% compared to a year ago due to short slaughter weeks and robust demand from Asian markets US fed beef prices firm as feedlots are now very current and thus have more leverage Good moisture conditions and higher calf prices could reduce US domestic cow slaughter in May and June Imported Market Activity for the Week Prices for imported lean grinding beef were for the most part steady this week even as buyers continue to try and push prices lower in light of expected weaker domestic values in late May and June. Much of the conversation in the market has revolved around availability and pricing of New Zealand cow meat. While indications are that cow slaughter in New Zealand has increased, it is un- clear as to how much New Zealand packers/ producers will be able to make up the shortfall that was created in late February and March. The assumption in discussions with market participants is that New Zealand will have fewer cows to sell during the fall cow run but not to the degree we have seen so far. Consider that New Zealand cow slaughter for the six weeks between Feb 5 and Mar 25 was 131,127 head, down 71,152 head (-35%) compared to the previous year. If cow slaughter in New Zealand USA Precipitation in Last 30 Days. Departure from Normal. Source: NOAA

DRESSED WEIGHTS, POUNDS VOLUME XVII, ISSUE US IMPORTED BEEF MAR KET PAGE 2 sis expected to be say down 15% y/y, this would imply that cow slaughter during the peak slaughter period (late April - early June) could be about the same as a year ago. Last year cow slaughter during this period averaged around 46,800 cows per week compared to slaughter in February and March that averaged around 20-21,000 head. All this is making the assumption that New Zealand producers will eventually send the cows to slaughter. However, feed conditions in New Zealand have been quite good through much of the late summer and early fall while dairy prices have recovered substantially compared to a year ago. Some market participants also indicated that they think culling in the last two years has been quite significant and it is likely that the culling rate this year will be much lower than during a normal year. The reduction in New Zealand supplies has been quite significant and it has compounded the impact of limited supplies from Australia. Market participants we contacted today continued to point out that they are finding it increasingly difficult to bridge the gap between US bids and Australian offering prices. Some of the offers from Australia remain outside the high end of the range of prices in our survey. Slaughter in Australia has been limited by a number of holidays and this has significantly reduced beef availability from this market. Based on exports for half of April, we project that Australian exports for April could be around 12,000 MT, which would be the lowest level since January and about half of what Australia shipped to the US in 2016 and a fraction of what was shipped in 2015. The level of volume shipped from Australia, lack meaningful supplies from Brazil and the lower than expected supply shipped from New Zealand have created a very tight supply situation in the US imported lean grinding beef market. We do not have any particular insight as to the position of specific users but it would likely be fair to point out that near term supplies are tighter than many expected. The result is continued firm prices for lean grinding beef and imported beef trading at a premium to domestic prices. US cow and bull slaughter has been running about 8% above year ago levels in March and early April but the pace of slaughter should slow down modestly in May. Moisture conditions have improved (see map on page 1) and higher feeder cattle prices also have bolstered demand for calves and could slow down the flow of cull cows into the market. Fed beef prices also remain very firm at this point thanks to robust demand but also very current supplies of cattle on feed. Most US cattle coming to market spend time in a feedlot. When feedlots fall behind in their marketings this tends to increase the weight of cattle rela- New Zealand Weekly Cow Slaughter Based on Oct - Sep Marketing Year. Source: New Zealand Meat Board 60,000 50,000 40,000 30,000 20,000 10,000 50,000 45,000 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000-930 920 910 900 890 880 870 860 850 0 head MT Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Est. Christmas Plant Closures AUSTRALIAN BEEF EXPORTS TO THE US 2014-15 2015-16 2016-17 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2014 2015 2016 2017 2011-15 FI STEER AVERAGE DRESSED WEIGHTS YEAR TO YEAR COMPARISON 5 YEAR AVERAGE 2016 2017 840 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec tive to where they normally should be for the time of year. The chart above shows the weight of steers so far this year running significantly below year ago and approaching the five year average. Front end supplies, i.e. the supply of cattle that are market ready, is down as much as 15% from a year ago, which has bolstered

Retail Beef Value, Cent per Lb. VOLUME XVII, ISSUE US IMPORTED BEEF MAR KET PAGE 3 US beef prices overall, including the price of beef fat trimmings. US feedlots likely placed more cattle on feed in March but the pace of marketings was strong enough to have more than offset the placement numbers. Beef prices today are about 15-20% higher than what futures were indicating earlier in the year. Below there is a brief writeup we did earlier today discussing US Domestic Price Summary Prices for 90CL boneless beef were quoted at 219 US cents on the top side, 1 cent lower than a week ago but at par with year ago levels. The weighted average price tonight was quoted at 215, 2 cent higher than a week ago. 85CL beef trim prices on the top side were quoted tonight at 198 cents, 7 cents higher from last week and the sane with last year. The weighted average price for 85CL beef was 189 cents a pound, 1 cents lower than a week ago. 50CL beef price was 112.8 cents on the high side, 10 cent higher than a week ago also 32 cent higher than last year. On a weighted average basis, the price of 50CL beef is now 97.9 cents, about 1 cents lower than last week Prices for 42CL pork trim were lower this week from the week before also as much as 18 cents lower than a year ago. 72CL pork trim were higher this week from previous week but still 0.3 cents lower versus a year ago. US Beef Retail Prices Retail beef prices in March increased compared to the previous month but they were still about 5% lower than the previous year and down 7.9% from the peak in May 2015. The decline in retail beef prices follows the decline wholesale beef prices at the end of 2016 and early 2017. The chart to the right shows the fairly strong relationship between wholesale beef values, as represented by the choice beef cutout, and the value of beef at retail. We have lagged the choice beef price by two months, in other words, relating the value of choice beef in January 2017 with retail prices in March 2017. What stands out in the last 12 months is that retail beef prices have been higher than one would expect given the long run relationship. Some of this may be due to the retail price data series itself, since it is not a weighted by sales volume. The other reason may be due to the fact that wholesale beef prices last fall and winter declined at a fairly rapid clip and retailers have taken their time to adjust. Wholesale beef prices in February declined compared to the previous month but they rose sharply in March. The average choice beef cutout in March was $216/cwt, 13% higher than the previous month but still about 4% lower than the previous year. So far in April the choice beef cutout has averaged $210/cwt, 4% under last year s levels. Market participants in the futures markets are now likely pondering what effect the stronger than expected cutout values will have on retail prices and eventually the amount of beef consumers will buy. Because retailers took their time in adjusting prices lower, it appears unlikely to us that we will see a notable increase in retail beef prices this summer. Some of the speculation that higher prices will kill beef demand may be overstating the case a bit. What may be a bit more problematic for beef demand, especially once we move past the key summer holidays (Memorial Day, 4th of July) is the price of competing proteins and beef trade flows. So far this year beef supplies available in the domestic market have increased but not as much as one would expect if you were simply looking at the slaughter numbers. For now retailers and foodservice operators are in full swing preparing for the seasonal improvement in demand that comes from warmer weather. Consumer confidence is at the highest level it has been in almost a decade and consumer disposable income growth has returned to pre-recession levels. The unemployment rate is at 4.5%. In other words, these should be good times for beef demand and retailers could opt to keep prices in check (after all their margins are still good) and capitalize on consumer willingness to indulge as the grilling season gets underway. Choice Beef Cutout (Lagged 2Months) vs. Retail Beef Value. 2002-2017 Data Sources: Cutout from USDA MPR System. Retail Value Calculated by USDA/ERS 700 650 600 550 500 450 400 350 300 Current Oct 16 - Mar 17 R² = 0.9316 250 100 120 140 160 180 200 220 240 260 280 Choice Beef Cutout, 2M Lag. cent per lb.

VOLUME XVII, ISSUE US IMPORTED BEEF MAR KET 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 18-Apr-17 11-Apr-17 19-Apr-16 from Last Year CME FEEDER CATTLE INDEX 136.61 133.85 2.1% 154.07-11.3% 19-Apr-17 12-Apr-17 20-Apr-16 FED STEER (5-MKT AVG) 128.03 125.35 2.1% 133.84-4.3% CUTTER COW CARCASS, NATIONAL, 90% LEAN, 350-400 LB. (carcass wt.) 122.00 117.00 4.3% 145.50-16.2% BONER COW CARCASS, NATIONAL, 85% LEAN, 400-500 LB. (carcass wt.) 118.50 118.50 0.0% 139.00-14.7% BREAKER COW CARCASS, NATIONAL, 75% LEAN, 500+ (carcass wt.) 110.00 112.50-2.2% 132.00-16.7% CUTTER COW CARCASS CUTOUT, 5-DAY MA, USDA 169.10 168.33 0.5% 173.19-2.4% 260 CME Feeder Cattle Index 240 220 200 180 160 140 120 100 80 60 Source: Chicago Mercantile Exchange

VOLUME XVII, ISSUE US IMPORTED BEEF MAR KET PAGE 5 TABLE 2 IMPORTED BEEF PRICES, 7:45 DAYS, CIF From Last Current Week Prior Week Week Last Year From Last Year 19-Apr-17 12-Apr-17 20-Apr-16 US East Coast Australian/NZ Lean, CIF 95 CL Bull, E. Coast 229.0 231.0 229.0 230.0 1.0 211.0 214.0 17.0 90 CL Blended Cow 210.0 212.0 209.0 210.0 2.0 196.0 197.0 15.0 90 CL Shank 208.0 210.0 208.0 210.0 0.0 196.0 199.0 11.0 85 CL Fores 192.0 194.0 190.0 193.0 1.0 179.0 180.0 14.0 85 CL Chucks UNQ UNQ N/A UNQ N/A 95 CL Bull, W. Coast 228.0 230.0 228.0 229.0 1.0 211.0 212.0 18.0 Uruguay CFH 90CL, E. Coast UNQ UNQ N/A UNQ N/A US East Coast, Trimmings, CIF 85 CL Trimmings 191.0 192.0 191.0 192.0 0.0 175.0 177.0 15.0 80 CL Trimmings 163.0 165.0 163.0 165.0 0.0 153.0 154.0 11.0 75 CL Trimmings 152.0 153.0 152.0 153.0 0.0 133.0 135.0 18.0 65 CL Trimmings 123.0 125.0 120.0 123.0 2.0 100.0 25.0 US East Coast Australian Cuts, CIF Cap Off Steer Insides 275.0 280.0 270.0 275.0 5.0 290.0 295.0-15.0 Steer Insides 14/18 UNQ UNQ N/A UNQ N/A Steer Flats 220.0 225.0 215.0 220.0 5.0 215.0 220.0 5.0 Steer Knuckles 245.0 250.0 240.0 245.0 5.0 230.0 235.0 15.0

VOLUME XVII, ISSUE US IMPORTED BEEF MAR KET PAGE 6 TABLE 3 IMPORTED BEEF PRICES, 7:45 DAYS, US WAREHOUSE From Last Current Week Prior Week Week Last Year From Last Year 19-Apr-17 12-Apr-17 20-Apr-16 US East Coast Australian/NZ Lean, FOB US Port 95 CL Bull, E. Coast 235.0 236.0 232.0 234.0 2.0 216.0 218.0 18.0 90 CL Blended Cow 218.0 220.0 217.0 218.0 2.0 202.0 204.0 16.0 90 CL Shank 215.0 216.0 216.0 217.0-1.0 203.0 205.0 11.0 85 CL Fores 200.0 199.0 200.0 0.0 182.0 183.0 17.0 85 CL Chucks UNQ UNQ N/A UNQ N/A 95 CL Bull, W. Coast 234.0 236.0 235.0 236.0 0.0 215.0 217.0 19.0 Uruguay CFH 90CL, E. Coast UNQ UNQ N/A UNQ N/A US East Coast, Trimmings, FOB US Port 85 CL Trimmings 198.0 199.0 198.0 199.0 0.0 180.0 182.0 17.0 80 CL Trimmings 175.0 174.0 175.0 0.0 159.0 160.0 15.0 75 CL Trimmings 160.0 161.0 160.0 1.0 138.0 139.0 22.0 65 CL Trimmings 128.0 130.0 128.0 130.0 0.0 102.0 28.0 US East Coast Australian Cuts, FOB US Port Cap Off Steer Insides 275.0 285.0 275.0 280.0 5.0 295.0 305.0-20.0 Steer Insides 14/18 UNQ UNQ N/A UNQ N/A Steer Flats 230.0 232.0 225.0 230.0 2.0 230.0 235.0-3.0 Steer Knuckles 250.0 255.0 250.0 255.0 0.0 245.0 250.0 5.0

VOLUME XVII, ISSUE US IMPORTED BEEF MAR KET PAGE 7 TABLE 4 US DOMESTIC BEEF AND CATTLE PRICES Current Week Prior Week From Last Week Last Year from Last Year Domestic Cutouts 19-Apr-17 12-Apr-17 20-Apr-16 Choice Cutout 215.17 210.13 5.0 222.77-7.6 Select Cutout 202.00 198.64 3.4 212.96-11.0 Domestic Lean Grinding Beef 90 CL Boneless 215.0 219.0 213.0 220.0-1.0 217.0 219.0 0.0 85 CL Beef Trimmings 189.0 198.0 190.0 191.4 6.6 194.0 198.0 0.0 50 CL Beef Trim 97.9 112.8 98.8 102.0 10.8 68.0 80.5 32.3 Domestic Pork Trim 42 CL Pork Trim 29.9 40.3 30.0 42.3-2.0 38.0 59.0-18.8 72 CL Pork Trim 65.0 87.3 64.0 85.3 2.0 68.0 87.5-0.3 Point of Lean Values 90 CL Domestic 243.3 244.4-1.1 243.3 0.0 50 CL Beef Trimming 225.5 204.0 21.5 161.0 64.5 42 CL Pork Trim 95.8 100.6-4.8 140.5-44.6 72 CL Pork Trim 121.2 118.4 2.8 121.5-0.3 National Direct Fed Steer 128.03 125.35 2.7 133.84-5.8 (5-day accum. wt. avg. price)

VOLUME XVII, ISSUE US IMPORTED BEEF MAR KET PAGE 8 TABLE 5 FUTURES AND SLAUGHTER INFORMATION From Last Futures Contracts Current Week Prior Week Week Last Year From Last Year 19-Apr-17 12-Apr-17 20-Apr-16 Live Cattle Futures April '17 127.875 124.200 5 3.68 126.775 5 1.10 June '17 115.875 114.350 5 1.53 117.875 6-2.00 August '17 112.225 110.375 5 1.85 114.925 6-2.70 October '17 111.350 109.850 5 1.50 114.850 6-3.50 Feeder Cattle Futures April '17 138.600 137.500 5 1.10 149.675 6-11.08 May '17 140.100 137.825 5 2.28 145.800 6-5.70 August '17 142.775 139.950 5 2.83 146.325 6-3.55 September '17 142.750 140.350 5 2.40 146.325 6-3.57 Corn Futures May '17 361 1/2 369 6-7.50 390 1/4 6-28.75 July '17 368 376 6-8.00 395 1/2 6-27.50 September '17 375 1/2 382 3/4 6-7.25 395 6-19.50 December '17 385 3/4 392 1/2 6-6.75 399 1/2 6-13.75 Ch Wheat Futures May '17 420 3/4 433 1/4 6-12.50 499 3/4 6-79.00 July '17 435 1/2 446 1/4 6-10.75 507 3/4 6-72.25 September '17 449 1/2 459 3/4 6-10.25 517 6-67.50 December '17 471 1/5 480 1/4 6-9.05 532 6-60.80 From Last Slaughter Information 7 Days Ending 7 Days Ending Week 7 Days Ending From Last Year 19-Apr-17 12-Apr-17 20-Apr-16 Total Cattle Slaughter 471,000 578,000 6-107,000 547,000 6-76,000 1-Apr-17 25-Mar-17 2-Apr-16 Total Cow Slaughter 109,595 111,624 6-2,029 97,041 5 12,554 Dairy Cow Slaughter 57,706 59,785 6-2,079 51,317 5 6,389 Beef Cow Slaughter 51,889 51,839 5 50 45,724 5 6,165

VOLUME XVII, ISSUE US IMPORTED BEEF MAR KET PAGE 9 TABLE 7 - US BEEF IMPORTS (Source: USDA/AMS) YTD Imported Meat Passed for Entry in the US week 9 4/2/2016 4/8/2017 Australia 81,412 53,486 (27,926) -34.3% Brazil 1,618 Canada 62,980 60,119 (2,861) -4.5% Chile 151 112 (39) -25.8% Costa Rica 2,648 2,647 (1) 0.0% Honduras - Japan 59 87 28 47.5% Ireland 760 648 (112) -14.7% Mexico 44,116 51,537 7,421 16.8% New Zealand 63,178 57,255 (5,923) -9.4% Nicaragua 9,797 12,865 3,068 31.3% Uruguay 7,814 8,505 691 8.8% Total 272,914 248,982 (23,932) -8.8% Source: USDA/FSIS US Beef Imports. Metric Ton. Data Source: USDA/Agricultural Marketing Service Imports as of April 8, 2017 Individual Country Volume. MT & Y/Y % Ch. Total 120,000 100,000 80,000 60,000 40,000 2015 2016 2017 TOTAL YTD: -9% 350,000 300,000 250,000 200,000 150,000 100,000 20,000 50,000 - - Total -34% -5% 17% -9% 31% 9% -9% Please note that US Customs has discontinued its previous reporting and now only reports on countries that have a quota allocation. We are now using the AMS data to report YTD beef import entries. This data is slightly different than Customs. We will add at a later time a page that shows quota filled by each country based on the new Customs report

VOLUME XVII, ISSUE US IMPORTED BEEF MAR KET PAGE 10 Australian Beef Quota Position Metric Ton. Australian Department of Agriculture Statistics 18.7% 17-Apr-17 Quota Shipments 79,104 2017 Quota 423,214 Balance 344,110 81.3% USA Quota Entries through Week Ending April 17 Source: US Customs 500,000 400,000 300,000 200,000 100,000 0 2016 YTD 2017 YTD % ch. Quota % cleared Australia New Zealand Uruguay Other 80,307,446 65,306,763 4,835,065 12,242,194 57,228,820 60,420,222 5,739,296 19,993,374-29% -7% 19% 63% 418,214,000 213,402,000 20,000,000 64,805,000 14% 28% 29% 31%