State of the World’s Beef Market

2007 & Beyond

Lynn Heinze
Vice President Information
U.S. Meat Export Federation

USMEF’s Mission

To increase the value and profitability

of the U.S. beef, pork, and lamb industries
by enhancing demand for their products
in export markets through a dynamic
partnership of all stakeholders

1
 USMEF Worldwide
Putting U.S. Meat On The World’s Table

St. Petersburg
Brussels
Denver Moscow Tokyo
Seoul
Monterrey Beirut Beijing
Mexico City Shanghai
Taipei
Guangzhou
Hong Kong
Singapore

USMEF Membership
• Packer/Processor &
Purveyor Trader
• Beef/Veal Producing &
Feeding
• Pork Producing &
Feeding
• Lamb Producing &
Feeding
• Feedgrain Producing
• Oilseed Producing
• Farm Organizations
• Agribusiness/Service
Organizations

2
 Topics

• Global Beef Production and Trade

• Ethanol and Grain Production Outlook
• Future Opportunities and Challenges

World Population Growth

Historical
7
6
5
4
Billion
3
2
1
0
'50 '55 '60 '65 '70 '75 '80 '85 '90 '95 '00
Projected
10
9
8
7
6
Double 1980 by 2050 Billion
5
4
3
2
1
0
'05 '10 '15 '20 '25 '30 '35 '40 '45 '50
6

3
 Exports have been a growth market for
U.S. Red Meats
160

140

120
Growth in Red Meat Consumption:
million mt

100

80

60

40 Rest of World Ï 387%

20
U.S. Ï 58%
0
7
'60 '65 '70 '75 '80 '85 '90 '95 '00 '05
Source: USDA

Where we’re going!

FAO Red Meat Consumption Estimates

An increase of over 25
million mt by 2014
250 +28%
million metric tons

200 +14%

150 Pork
Lamb
100 Beef

50

0
2006 est 2014 est 2030 est 8
Source: OECD/FAO % change from 2006

4
 Global Meat Imports

U.K. Russia
S. Korea
Italy Japan
Mexico
Hong
S. Arabia
Kong

9
Source: Worldmapper

Global Beef Production and Trade

10

5
 Beef Globalization – Regional Shifts

1990 2006
Hd change
Region Slaughter Slaughter % change
(million hd)
(million hd) (million hd)
EU 49.8 28.2 -21.6 -43%
N. America 47.3 44.9 -2.4 -5%
S. America 45.0 56.6 11.6 26%
Asia 38.4 82.3 44 114%
Russia 33.7 8.6 -25 -74%
Oceania 10.9 12.6 1.7 16%
TOTAL 225.3 242.9 +8 4%

11
Source: USDA/USMEF

World Beef Trends

• Increasing costs of production
• Growing focus on attributes of end product
• Consumer driven production and focus on
niche marketing
• Small but growing demand for natural and
organic beef
• Focus on food safety and animal disease
prevention
– Disease testing

12

6
 2006 World Beef Production – Top 10
Rank Country Total Production
million MT (CWE)
1 U.S. 11.9
2 Brazil 8.85
3 EU-25 7.88
4 China 7.5
5 Argentina 3.1
6 India 2.37
7 Mexico 2.17
8 Australia 2.15
9 Russia 1.46
10 Canada 1.37
13
Source: USDA

2006 World Beef Consumption – Top 10

Rank Country Total Consumption
million MT (CWE)
1 U.S. 12.8
2 EU-25 8.22
3 China 7.4
4 Brazil 6.9
5 Argentina 2.6
6 Mexico 2.5
7 Russia 2.3
8 India 1.6
9 Japan 1.2
10 Canada 1.0
14
Source: USDA

7
2006 World Beef Exports – Top 10
Rank Country Exports 000 MT
1 Brazil 1,503
2 Australia 1,140
3 U.S. 656
4 Argentina 444
5 New Zealand 412
6 Canada 370
7 India 485
8 Uruguay 340
9 Paraguay 173
10 Nicaragua 52

15
Source: Global Trade Atlas and USMEF estimates

2006 World Beef Imports- Top 10

Rank Country Imports 000 MT
1 U.S. 1,440
2 Russia 840
3 Japan 690
4 EU-25 540
5 Mexico 365
6 Egypt 225
7 S. Korea 190
8 Canada 150
9 Philippines 140
10 Taiwan 98

16
Source: USDA

8
 Growth Trend Projections
Beef Production
14000
U.S.
12000
Brazil
10000 China
EU-25
8000
000 MT

India
6000 Argentina
Australia
4000
Canada
2000 Mexico
N. Zealand
0
'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15
17
Source: OECD/FAO

Growth Trend Projections

Beef Consumption
14000 U.S.
12000 China

10000 Brazil
EU-25
000 MT

8000
India
6000
Russia
4000 Argentina

2000 Mexico
Japan
0
'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15
18
Source: OECD/USMEF

9
 Beef Export Projections
2,500

2,000
Brazil
Australia
1,500
New Zealand
United States
1,000
Argentina
Canada
500

0
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
19
Source: USDA; thousand MT (CWE)

Growth Trend Projections – Beef Imports

1,800
United States
1,600
1,400 Russia

1,200 Japan
1,000 EU-25
800 Mexico
600 Egypt
400
South Korea
200
Canada
0
05

07

09

11

13

15
20

20

20

20

20

20

20
Source: USDA; thousand MT (CWE)

10
Major Beef Markets- Grass Fed & Corn Fed
• Outside the U.S., the
majority of global beef
production is grass fed
• Argentina
– Growing corn-fed
production and exports
• Brazil
– Growing grain-fed
production and exports
• Australia
– Annual fed growth: 10%
– Feedlot capacity >1 mil head
• Europe
– Small percent of production;
Consumed domestically
• China
– Small percent of production;
Consumed domestically 21

Major Beef Markets- Grass Fed & Corn Fed

• Preference for grain-

fed in Asia and
North America
• Rest of the world
prefers lean grass-
fed beef
• Grass-fed beef is a
growing niche
market in the U.S.

22

11
 Changing Costs of Production
• Challenges and tradeoffs between
biofuels and feed markets
• Over the past 10 years, U.S. cost of
beef production (at the feedlot)
averaged $0.52/pound of gain
• Projected 2007 cost of gain: $0.68-
$0.76
– An increase of over $75/head in production
costs (at the feedlot)

23

Grain & Ethanol Outlook

24

12
 AS OF: July 2006

In operation

Under construction

Proposed

25

Ethanol and Corn Statistics

• 111 Current ethanol plants in the U.S.
• 78 Planned ethanol plants
• Currently produce 5.5 billion gallons/year,
adding planned plants will double production
• 54.6 million MT and 20% of 2006/07
U.S. corn crop will be used for ethanol
• 8% of 2006/07 world corn crop used
for U.S. ethanol production
• Nearly 70% of 2006/07 world
corn crop used for feed
26

13
 Sugar Cane in Brazil

27
Brazilian Ministry of Agriculture, Livestock, and Food Supply

Brazilian Sugar & Ethanol Production

28
Brazilian Ministry of Agriculture, Livestock, and Food Supply

14
 Global Biofuels Production
• Brazil: #1 producer of ethanol- from sugar cane > 4.5 billion
gallons
• China: growing production of ethanol from corn
– 2007 production capacity: 1.66 million mt
• EU-25: energy policy encourages growth in biodiesel
production; primarily from rapeseed
– current biodiesel production: 3.18 million mt
– Ethanol, primarily from cereals: 0.73 million mt
• Many other countries adopting renewable fuel energy policies
– Australia
– India
– Japan
– Malaysia
– New Zealand
– The Philippines
– Thailand

• Competing land uses

– Corn, oilseed crops, sugar cane, grasslands, crops for cellulostic
ethanol 29

U.S. Ethanol Production

(million gallons)
5000
4500
4000
3500
3000
2500
2000
1500
1000
500
0

30
Source: Renewable Fuels Assn.

15
 Corn Used in Ethanol Production

20% of 2006 U.S. Crop

2000
30% of 2007 U.S. Crop
1500

1000

500

31
Source: USDA; million bushels

U.S. Corn Projections

16,000
14,000
12,000
10,000 Exports
Ethanol
8,000
Feed & Residu
6,000
Production
4,000
2,000
0
20 /0 6

20 0 7

20 /0 8

20 /0 9

20 1 0

20 /1 1

20 1 2

20 /1 3

20 /1 4

20 1 5

20 /1 6

7
/1
/

/
05

06

07

08

09

10

11

12

13

14

15

16
20

32
Source: USDA; million bushels

16
 Response to increasing world corn prices:
Argentina Corn Production & Exports

Exports Production
+4.5 mil MT +5 mil MT

33

China Corn Supply and Use

160
140
120
100 2004/0
80 2005/0
60 2006/0
40
20
0
Pr Fe Ex FS Su
od ed po I rpl
uc rts u s
tio
n

Ethanol 34
Source: USDA

17
 World Coarse Grains Production
(MT)
350
300 United States
U.S.
250 EU-25
200 China
China Brazil
150
EU-25 India
100
Russia
50 Brazil
Mexico
0
Canada
Argentina
92 1
94 3
96 5
98 7
00 9
02 1
/0 3

08 7
10 9
12 1
14 3
5
06 s t
/9
/9
/9
/9

/9
/0
04 / 0

/0
/0
/1
/1
/1
5e
90

Australia
35
Source: OECD/FAO

World Coarse Grain Net Trade

80

60
United States
40 Argentina
Brazil
20 China
Korea
0 Mexico
Japan
-20

-40
00/01 02/03 04/05 06/07 08/09 10/11 12/13 14/15

36
Source: OECD/FAO/USDA

18
 Decreasing Stocks Lead to Higher
Corn Prices

37

Feed Ingredient Prices

($/short ton)
300

250

200
DDGS
150 CGF
SBM
100 Corn

50

0
19
19
19
19
19
19
19
19
19
19
20
20
20
20
20
20
20
20 *
90
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
*

38
Source: USDA/USMEF estimates

19
Factors Affecting us Now and in the
Future…
• Animal disease
– FMD, BSE, AI
• Policy: FTAs, DDA
– SPS issues and other barriers to trade
• Nutrition
– Obesity and hunger
• Industry consolidation
• Animal welfare
• Environmental issues
• International institutions
– IMS, CODEX, OIE, WHO

39

Consumers are in the driver’s seat

• Consumer trust
• Brands
• Sophisticated
marketplace
• “Ethical brands” and
“food with a face”
– Natural and organic
production and
standards
• Food safety
• Nutritional value
• Industry image
40

20
 International Partnerships Require
Great Citizenship
• Seminar sponsor to help
educate Mexico consumers on
managing diabetes and obesity
• Nutrition information presented
to young athletes through
sponsoring nutrition
commercials on TV and major
sporting events
• Sponsor of a major Mother’s
Day promotion encouraging
consumers to purchase U.S.
meat and attend a education
seminar with cooking
demonstrations and a nutrition
message for 5,000 mothers
• Organize cooking workshops at
stores throughout Mexico
offering consumers the
opportunity to cook and taste
41
red meat in the stores

To be Competitive in a Changing
World
• Focus on advantages:
– Diversity, flexibility
of programs, grain-
fed, grass-fed,
organic
• Aggressively pursue
trade and competition
• Embrace trade
enhancing policies
• “Export-minded”
mentality

42

21
 To be Competitive in a Changing
World

• Deliver assurances of
food safety to all
consumers
• Respond to consumer
demand for value-
added specialty
products

43

Summary
• We all have the
opportunity to define
both our future and the
future of our industry.
• Adaptation is a key to
survival.
• An industry that cannot
be competitive
internationally will not
be competitive
domestically.
• How well we cooperate
will determine how well
we compete!

44

22
Questions

For more information: www.usmef.org

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