Financial incentive and genetic improvement programs along with stable grain prices are paving the pathway for Mexico’s herd recovering, however, the herd recovery in the U.S. would slow live cattle exports in the short/medium term. As Mexico’s production is expected to grow during 2017, increased beef exports will maintain stable per capita beef consumption. While Mexico learns how to deal with porcine epidemic diarrhea (PED) and to make genetic improvements in domestic herd, pork production is expected to bolster supplies, increase price competitiveness with other meats, and therefore, increase consumption. The recently-created Animal Protein National Commission (CONAPO) would advocate for increased protein consumption regardless the animal origin. During 2017, Mexico will continue importing beef and pork from the United States.
Stable grain prices would boost production in the mid-term
Mexico’s main financial incentive program, which continues enticing producers to repopulate the domestic herd, is reportedly meeting its objectives. Mexican cattle production is forecast to expand to 7.1 million head in 2017, as producers who are registered for the 2016 Program to Promote the Livestock Sector (“Programa de Fomento Ganadero”) are reportedly entitled to continue receiving a direct subsidy for 2017. Improved genetics through the Program for Genetic Improvement are expected to aid cattleman in the recovery of the domestic herd as well.
As previously reported, this program is enabling producers to remain in business and to offset obstacles to repopulation that the domestic herd has previously encountered, in particular, the lack of steers for feedlots. Due to the incentive to feed steers, calf slaughter is expected to decline by the end of 2016, but will likely rebound in 2017. Despite an ample supply of grain and pasture in 2016, herd expansion is unlikely to occur until 2017 at the earliest.
Despite the peso-dollar exchange rate disadvantages Mexican producers face for grain, relatively low grain prices overall should keep production costs fairly stable. Moreover, as elevated beef prices generate positive margins, feedlot producers will likely lengthen feed duration, resulting in higher weights. The decline in calf slaughter will also contribute to higher weights.
Herd recovery in the U.S. dampens exports from Mexican cattlemen
Live cattle exports are forecast at 1.0 million head in 2017, which is marginally down from the revised 2016 figure (1.1 million head), as lower demand for steers prevails in the United States due to herd recovery. Despite the fact that the price paid per head was reduced significantly compared to prices paid in 2015, the U.S. market remains attractive for Mexican cattlemen in part due to the exchange rate. As noted previously, retention by feedlots will decrease exportable supplies contributing for the domestic herd recovery. A rebound in exports is not expected for the last quarter of 2016 in light of U.S. declining prices.
Mexico to continue importing genetics
Live cattle imports are forecast at 35,000 head, slightly up from the 2016 figure as feed lots are being enticed to bring back the domestic herd to historical levels. Despite high prices for U.S. livestock, partnered with a strong dollar, Mexico will continue importing cattle mainly for feeding purposes, with small-scale purchases for herd improvement. The import of high breed cattle aimed for herd
improvement is a slow-paced mid- to long-term objective for the cattle sector, supported by the ongoing Government of Mexico (GOM) herd improvement program. Imports of cattle for feedlots from Australia are gaining share while New Zealand imports are expected to begin during 2017.
Cattle and Beef
On June 8, 2016, the Secretariat of Economy (SE) published in Mexico’s Federal Register (Diario Oficial – DOF) a decree establishing tariff rate quotas (TRQ) for the import of live cattle for feeding purposes, and fresh, chilled, and frozen beef from countries with whom Mexico has no free trade agreements. The decree established that Mexico is not self-sufficient and must supplement its domestic beef production through imports. It is important to note that the text of the decree emphasizes the need to enforce measures that could guarantee the stability of the market given possible fluctuations in the availability of cattle and a potentially limited beef supply.
As a result, SE’s decree lays the groundwork to establish a duty-free TRQ for the import of live cattle for feeding purposes and fresh, chilled, and frozen beef classified under HTS. 0102.29.99 (live cattle, other), 0201.10.01 (carcasses or half carcasses), 0201.20.99 (bone-in meat), 0201.30.01 (deboned meat), 0202.10.01 (carcasses or half carcasses), 0202.20.99 (bone-in meat), and 0202.30.01 (deboned meat).
Moreover, the text notes that, historically, Mexico’s main beef supplier has been the United States, but that more recently high U.S. beef prices have slowed imports. Mexico remains the main live cattle supplier to the United States. Recently, due to liquidation of the domestic herd in the United States, attractive cattle prices have enticed Mexican cattlemen to increase exports, thus limiting the availability of cattle to supply the domestic market. Consequently, higher domestic beef prices have inhibited consumption, mainly in lower income consumers.
According to the decree, the GOM estimates that during the last five years, the average annual growth rate of beef production has been only 1.2 percent, while exports have grown nearly 15 percent and imports have decreased 10.2 percent, constraining availability and pushing up prices. Consequently, domestic consumption dropped to 0.7 percent. It is important to note that this decree is only a first step in the process to open a TRQ for these products, and to date there has not been any additional movement in that direction…
Gabriel Hernandez. USDA Gain Report MX6032. USDA. October 14, 2016.