Abstract

U.S. cattle and beef markets were most affected. Bans on key U.S. beef export markets were implemented and adjusted; court cases in the United States related to reopening the U.S. border to Canadian cattle and beef imports are moving forward.

On July 14, 2005, the Ninth District Court of Appeals lifted the preliminary injunction that blocked implementation of the BSE minimal-risk regions rule. Pork, dairy, and lamb markets did not face any direct disease issues but both U.S. and international outbreaks of Avian Influenza buffeted poultry markets. Forecasts of 2005 U.S. animal-products trade reflect expected market responses given the uncertainties surrounding cattle and beef markets in the United States.

Introduction

Beef, cattle, and poultry trade restrictions related to disease have been key features of animal-product markets in the United States since the middle of 2003. In particular, cattle and beef markets continue to be impacted by the trade restrictions that followed the discovery of Bovine Spongiform Encephalopathy (BSE) in North America in 2003. Both U.S. and international outbreaks of Avian Influenza (AI) influenced poultry markets late in 2003 and during all of 2004.

Other factors shaped worldwide animal-product markets in 2004, including the changing flow of animal products as countries adjusted to redefined markets. Brazil in particular has emerged as a significant competitor of the United States in international poultry markets and as a major player in international beef markets. Exchange rate movements that weakened the dollar relative to key currencies also played an important role. The cloud over beef and poultry trade contrasted with the robustness of the pork, lamb and mutton, and dairy markets. International forces were at play in these markets, but not in such a negative way as for beef and poultry. The outlook for the U.S. meat, poultry, and dairy markets in 2005 relies on assessments of domestic production, the continuing effects of disease and trade restrictions on exports to major trading partners, the role of “new” animal product suppliers, and currency exchange relationships.

Poultry

World poultry trade in 2004 was affected by outbreaks of Avian Influenza (AI), first in Southeast Asia in late 2003, and in selected areas of the United States in February 2004. Thailand and Vietnam continued to experience outbreaks of a highly pathogenic AI, which appears to be transmissible to humans, throughout 2004. Early hopes in the United States were that the bans by some major countries on U.S. exports would be lifted entirely or at least restricted to only the AI-affected regions. However, China, Hong Kong, and South Korea maintained total bans through most of 2004. U.S. broiler exports fell by just over 3 percent from 2003 to 2004, even though world exports increased.

Short production cycles make the world poultry market perhaps the most dynamic of the three major meat markets in terms of adjusting market shares. U.S. broiler exports increased rapidly in the early 1990s, making the United States the largest exporter of broiler meat by 1996. After 1996, however, U.S. broiler meat exports did not increase much until 2001, when BSE and FMD concerns about red meats resulted in significant increases. Disease-related trade restrictions have directly, or indirectly, affected U.S. poultry product exports for several years.

The record U.S. poultry exports in 2001 resulted, in part, from fears related to BSE and FMD that led to increased demand by consumers for beef substitutes such as poultry meat. At the same time, poultry exports by the European Union (EU) declined in order to satisfy the increased internal EU demand for poultry meat, a situation that provided opportunities for additional U.S. exports. In 2002, beef imports resumed in major markets as disease-related fears abated, reducing demands for U.S. poultry meat.

Bans in Russia and other countries pushed U.S. exports lower because of concerns about the use of antibiotics in broiler production, microbial rinses used in U.S. processing plants, and poultry disease outbreaks. Russia, the largest U.S. export market for poultry products, also introduced and implemented a poultry quota in 2003 that limited export opportunities. The subsequent lifting of trade restrictions in mid-2003 helped shift U.S. poultry meat exports back on track for the rest of the year, although still lower overall. However, exports were again curtailed by AI outbreaks in some parts of the United States in early 2004.

The February 2004 AI outbreak in some regions of the United States initially precipitated bans on all poultry meat by a number of important importing countries including China, Hong Kong, Japan, South Korea, Cuba, and Mexico. Complete bans by China, Hong Kong, and South Korea remained in effect for most of 2004 and resulted in a 3-percent reduction in total U.S. poultry exports for the year. Broiler exports account for about 90 percent of U.S. poultry meat exports, and these three countries, plus Japan, accounted for 22 percent of U.S. broiler exports in 2001-2003. Some of the other countries that initially imposed complete bans, most importantly Mexico, later restricted the bans to imports from only selected U.S. States or counties. Canada imposed no ban at all.

The United States has increased broiler meat exports significantly in recent years to three important regions: Mexico and Canada (NAFTA partners), the Caribbean, and the array of countries that emerged from the breakup of the Soviet bloc and the Soviet Union itself. Most of the growth to the Caribbean market is due to increased exports to Cuba, which accounted for about half of the U.S. broiler meat exports to the Caribbean in 2004. Following the U.S. AI outbreak, Cuban poultry import bans led to declining exports to the Caribbean in 2004. U.S. broiler meat exports to Mexico increased 18 percent in 2004 following a 12-percent increase in 2003, in part due to initial restrictions on U.S. and Canadian beef imports imposed by Mexico following the discovery of BSE in those countries. Coupled with relatively high U.S. beef prices, consumers turned to meat substitutes for beef. Even with large, relatively cheaper supplies of beef available in Canada, U.S. broiler exports to Canada rose by 7.5 percent and 7 percent in 2003 and 2004, respectively.

Exports of poultry meat to the countries emerging from the Soviet bloc’s breakup increased from nearly zero in 1993 to about 200 million pounds through the late 1990s. By 2004, these countries had become the secondlargest destination for U.S. broiler meat. The increased broiler meat exports are attributed to economic growth in that part of the world and transshipments to Russia, which itself accounted for 34 percent of U.S. broiler exports in 2001-03.

An annual quota of 1.05 million metric tons on all poultry imports into Russia went into effect May 1, 2003, to be in place for 3 years. The quota is allocated according to historical market shares, with the United States receiving 75 percent of the total. Distribution of the quota has been fraught with difficulties, however, and neither the prorated quota for 2003 nor the full quota for 2004 was filled. Farm lobbyists in Russia argued in favor of quotas or high tariffs as a means of protecting the Russian food industry in general, and the poultry sector in particular. Russian-produced poultry meat likely could not compete with imported product because of high costs and a slowly modernizing market infrastructure from production through processing and distribution to consumers.

Increased exports of poultry meat by other countries have cut into the U.S. share of the global market, with Brazil, China, and Thailand being principal competitors in the past several years. Brazil became the world’s largest exporter of poultry meat in 2004 as production increased in response to both growing domestic demand and increasing import demands from countries that had bans on shipments from other poultry meat suppliers (fig. 5). Brazil’s poultry meat exports are diversified (among products) and its continued ability to supply markets with competitively priced poultry meat puts Brazil in direct competition with the United States across many markets.

For example, Brazil accounted for 7 percent of Russian poultry imports in 2001, and increased to 21 percent in 2002. The added Brazilian exports were a substitute for U.S. poultry meat that had been banned on the Russian market. The implementation in 2003 of the Russian quota based on its historical exports to Russia, which averaged quite low, dramatically reduced Brazil’s share of the Russian market, a result Brazil ask Russia to review.

Poultry meat exports from both China and Thailand are concentrated in Asian markets, with Japan being the largest single market for both countries. Concerns about disease problems and drug residues in Chinese poultry products continue to limit China’s poultry meat exports to several countries. Prior to a ban on China’s poultry exports announced in June 2001 because of an AI outbreak, 70 percent of China’s poultry meat exports were to Japan. AI also disrupted Thailand’s poultry exports—with the exception of significant shipments to the EU, nearly all of Thailand’s poultry meat exports had gone to Asian markets. Thailand’s exports to its major markets are currently limited to fully cooked products.

Turkey meat markets were caught up in the adjustments brought about by the impacts of the AI outbreaks as importers linked the disease with all poultry, not just chicken. Despite increased sales to Mexico, the largest market for U.S. turkey meat, total exports fell by about 8 percent in 2004 as sales to China and Hong Kong were significantly curtailed due to AI worries. Sales to China and Hong Kong are expected to recover in 2005, and increasing sales to Mexico are also expected. Based on these forecasts, turkey meat exports are likely to exceed the 2001 record of 487 million pounds. For 2005, turkey exports are expected to reach about 536 million pounds, an increase of almost 21 percent over 2004.

Combined U.S. exports of broiler and turkey meat are expected to increase about 6 percent in 2005, to 5.6 billion pounds. That forecast presumes, however, that disease-related limitations on U.S. poultry meat exports are relaxed while limitations on China’s and Thailand’s exports remain for the year, and that exports by Brazil do not undercut U.S. product. Brazil’s exports of fresh/chilled and frozen poultry meat to Japan increased 65 percent in 2004. Were Japan to allow uncooked product imports from Thailand and/or China, U.S. poultry meat exports would not be expected to increase.

Egg and egg product exports in 2004 were as low as 23.2 million dozen (shell-egg equivalent) in the first quarter, when U.S. prices were very high. Egg exports increased to just over 53 million dozen in the fourth quarter as exports adjusted to plummeting U.S. prices as egg production recovered. Total egg exports in 2004 were about 167 million dozen. The outlook for 2005 is promising, as competitive U.S. prices are expected to persist. Also, the EU is implementing supply controls on layer flocks that will likely reduce export supplies. Total U.S. shell egg and egg product exports in 2005 are expected to be about 18 percent higher than in 2004, at 197 million dozen.

Conclusions

Cattle and poultry trade restrictions related to disease clearly shaped the animal product markets in 2004. Beef, cattle, and poultry trade directly responded to changing situations related to diseases. Pork, dairy, and sheep and lamb markets were indirectly affected. Other factors of some consequence in shaping last year’s markets include the emergence of competing animal product suppliers—Brazil being a prime example—and exchange rate movements that made U.S. exports more competitive on the international stage. As legal proceedings and regulatory actions are resolved, the import and export expectations and forecasts for animal products will be adjusted. Pork, sheep, and lamb trade forecasts are less influenced by these factors, and dairy markets often move to a different beat altogether.

Exports of U.S. animal products should remain competitive in international markets as exchange rate movements continue to result in a relatively weak U.S. dollar. The dollar’s position would tend to limit imports somewhat, at least from some suppliers. Countries like Brazil and Canada emerged as significant competitors of the United States in some animal product markets—beef and poultry for Brazil, pork for Canada. This initial outlook for the U.S. meat, poultry, and dairy markets in 2005 and forecasts into the future rely on continuing assessments of the various ongoing legal and regulatory actions, the role of competing animal-product suppliers in international markets, and currency exchange relationships. While 2005 forecasts are highlighted in this report, USDA started making initial forecasts for 2006 in May 2005.

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Source: USDA NASS - August 2005