U.S. beef export gains, access to China benefits packers like Tyson Foods

The U.S. beef market is off to a good start in 2017 and a big reason lies in improved exports in the first two months of the year, according to Derrell Peel, livestock marketing specialist at Oklahoma State University.

Peel said U.S. beef exports were up 19.3% in February over a year ago. For the first two months of the year, Peel said U.S. beef exports rose 20.1% from a year ago. And those increases were up against 2016 exports that were up a solid 12.6% for the year.

This week China has reportedly agreed to accept U.S. beef products that have been banned since 2003. This move comes as President Trump recently met with Chinese President Xi Jinping to discuss commitments to balance the trade deficit between the two countries. Technically, China lifted the ban in September, but trade has not resumed.

Stephens Inc. analyst Farha Aslam said the greater China region which includes China, Hong Kong and Vietnam is valued as a $7 billion market. Aslam cautioned in a note to investors that “China has twice before agreed to resume U.S. beef trade but regulatory hurdles have prevented any real trade to materialize.”

Peel said Japan remains the top destination for U.S. beef exports which were up 44.4% year over year for January and February.

“Japan accounted for 25.7% of total beef exports in 2016,” Peel said.

He said South Korea is the second largest beef export market for the U.S., up 26.5% in the first two months of the year compared to the same period in 2016. Peel said South Korea has grown its share of U.S. exports for the past four years reaching 17.8% in 2016.

Mexico is third largest beef export market, up 25.8% year to date, according to Peel. He said beef exports to Mexico have decreased in recent years but did show a year over year increase of 8.6% in 2016. Canada is the fourth largest market for U.S. beef and exports rose 17% compared with the first two months of 2016. Canada’s share of beef exports has also declined in the last five years with a 2016 share of 12.1% of total exports.

Hong Kong has had a larger share of U.S. beef exports in the last four years but dropped from the previous year to 11.5% of total exports in 2016. Beef exports to Hong Kong so far in 2017 are down 23.6%.

Peel said the top five markets for U.S. beef comprised 83.7% of total beef exports in the first two months of 2017.

Stronger beef exports are good news for Tyson Foods, one of the largest meat packers in the U.S. Tyson’s beef division slaughters an average of 125,000 head per week, which is then processed in its eight beef packing facilities. As of June 2016 Tyson Foods had 24% of the U.S. beef market share, JBS USA was next with 22% and Cargill held a 19% market share.

Steve Kay, publisher of Cattle Buyers Weekly, said more than 80% of Tyson beef is sold in the fresh form, some is value-added as case-ready products sold at retail. He said the fresh form has to be marketed sold and moved within a matter of weeks.

Kay recently told Talk Business & Politics that Tyson’s beef business is run well and there is stronger demand today because beef prices are cheaper for U.S. consumers. Kay said beef production is up 3.7% this year and that’s going to mean people eat more beef. The per capita consumption forecast for red meat and poultry is 217.2 pounds this year, up from 214.6 pounds in 2016. Kay said in 2013, the per capita meat consumption was 203.6 pounds. Kay said beef packer margins are also close to $100 per head, which encourages packers to buy and slaughter more fed cattle.

Beef imports also have to be considered and Peel said the U.S. has imported 17.4% less beef to start this year. He said imports from Australia, typically the largest source of U.S. imports, is down 45.5% this year, following a 39% decline in 2016. The country is experiencing drought and reduced animal inventories.

Tyson Foods’ shares (NYSE: TSN) closed Tuesday at $62.86, up 21 cents. Over the past 52 weeks the Tyson share price has between $55.72 and $77.05. Tyson reports second quarter earnings on May 8. Wall Street expects $1.04 per share, slightly below $1.07 earned a year ago.