CME: Spring Beef, Pork Prices Impacted by Export Challenges

by 5m Editor
5 April 2013, at 9:06am

US - In one of those "Well, duh!" moments, we managed to omit one critical factor from our list of issues that have impacted pork and beef prices this spring — export challenges, write Steve Meyer and Len Steiner.

And the challenges are indeed serious and involve two important markets, Russia and China, and concerns over residues of ractopamine, a beta-agonist used in pork, beef and turkey production. The product is sold under the trade name Paylean for pigs and Optiflexx for cattle.

Russia and China play different roles in the two sectors. As can be seen in the charts below, China is a major market for both pork and pork variety meats but has long had in place a de facto ban on US beef and beef variety meat products. China was the third largest destination for pork exports in 2011 and the fourth largest in 2012. Adding Hong Kong to those totals would leave China the number three destination in both years. But China has quickly risen to the number two ranking among markets for pork variety meats and is our top customer if Hong Kong is included. China is now the clear leader in the value of pork variety meat exports. The United States Export Federation estimates that pork and pork variety meat exports to China account for roughly $7 and $4.75, respectively, per head of US hogs.

Russia, is a smaller but important customer for both species, ranking as high as fourth on our pork customer list in 2008 and growing to be our sixth largest beef customer in 2012. Russia has consistently been the second largest destination for US beef variety meat exports since 2007. USMEF estimates that the impact of losing Russian market for beef and pork products would be $800 million or $15/head of cattle and $4/head of hogs.

Russia notified US officials in December that they would be required to certify that products were free of ractopamine residues. Russia then closed its markets when the US government did not start a program to meet those demands.

China has demanded that US product be certified to be ractopamine free but the exact “certification” requirements are still in doubt. US packers with whom we have talked are concerned that “certification” will not be sufficient to meet China’s demand since the product may be tested when it arrives, implying that all product must be ractopamine free. Our sources indicate that it is virtually impossible to prevent cross contamination in a plant — especially with testing methods allowing detection at the parts per trillion level. This means that segregation of ractopamine-fed and ractopamine-free animals may not be possible. It is our impression that to avoid potential problems, all animals in a plant will have to be ractopamine free.

How will the situation be rectified? There is no easy answer to that question. USMEF’s March statement on the situation said:

"Russia’s ban on residues . .. brings into clear focus the dilemma that arises when our support for science-based trade and meeting the demand of our customers collide with a foreign country’s non-science -based import requirements. . . . The industry has encouraged our government to press Russia to adopt a science-based standard for beta agonists. At the same time, we also asked USDA to develop a program to certify residue-free exports."

Those positions do not necessarily fit together but they do, it seems, address the realities of today’s international trade environment. China and Russia are not the only countries that have trade restrictions that do not agree with internationally-accepted scientific standards. The EU is notorious for adopting additional trade restrictions. Taiwan has banned US exports over ractopamine for several years. Working toward science- based standards is well and good but recognizing the desires of our customers still seems like good business — so long as those customers are made to pay all of the costs of their preferences. It remains to be seen whether that will be the case for US beef and pork.