Changes in global manufacturing beef market

• As the US herd passes cyclical peak, imported lean trim demand will likely diminish
• Australian manufacturing beef exports shifting to Asian markets
• Growing competition from low-cost exporters and rise in meat-alternatives

Over the last decade, the US has imported about 20 to 35% of its annual domestic lean manufacturing beef requirements (in contrast it has imported 8-14% of overall beef consumption). Over half of US beef is consumed as ground product. This has underpinned the beef trade from Australia – trim from US fed cattle is typically too fatty to simply grind and requires blending with leaner product.

Australia is the primary source of frozen boneless beef imports (accounting for 44% of overall volume over the last decade), followed by New Zealand (38%) and Nicaragua (7%) and Uruguay (5%).

Cow and bull beef production has been rising in the US over the last three years – with elevated dairy cow slaughter fuelling growth of late – and is expected to continue on that path over the next few. As such, US appetite for imported lean grinding beef may be subdued, reflective of the dynamics witnessed amidst the previous US herd liquidation in 2011.

So if US lean imported beef requirements are declining then, why are imported Australian trim prices to the US at a four-year high? It is also closely linked to rising demand from Asia competing with a strong US consumer market.

The rise of Asia as a manufacturing market is not a recent phenomenon but has accelerated due to growth from China in the last two years. The region represented 56% of Australian manufacturing exports last financial year.

ASF is adding fuel to Chinese demand, but this growth also reflects a maturing of the market and strong consumer demand from a fast emerging affluent consumer class. Australian manufacturing exports to China have increased 91% year-on-year in the first nine months of 2019, while hindquarter primal exports have expanded 86% over the same period. Meanwhile, Chinese beef imports from South America surged in the first seven months of 2019.

A severe economic slowdown in Asian markets could subdue this strong demand growth. However, consumer markets in Asia have so far proven resilient to ongoing trade tensions and future medium-to-long term demand growth is projected to remain positive across the region as the middle-class populations swell.

The tricky part of using past trends to forecast the future is that they cannot capture underlying changes in the market.

Many fast food chains feature fresh-never-frozen beef in their range of quarter pounders. The entirety of Australian manufacturing exports to the US are frozen. While the fresh-never-frozen shift threatens the trim trade with Australia, frozen beef still remains critical to the vast majority of US burger manufacturing. The other major shift in the US burger market has been the arrival of plant-based alternatives on menus.

These plant-based burger alternatives are hitting the market at an affordable price point but are yet to win wide-spread approval by customers or businesses to have a noticeable impact on beef demand. Although growth is strong, plant-based burgers of all varieties are estimated to still only represent a tiny portion of the food service burger market by value and they remain very much a niche product in the broader protein mix.

The other threat comes from cell-cultured meat however the price of these product remains well-above commercial viability. In addition, consumer’s still need to come to grips and accept these lab-grown products and they are yet to pass regulatory approval. Cell-cultured meat may compete just as much with their plant-based counterparts than real beef and have many challenges to overcome.