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Report Name: Livestock and Products Semi-Annual Required Report: Required - Public Distribution Date: March 06,2020 Report Number: AR2020-0007 Report Name: Livestock and Products Semi-annual Country: Argentina Post: Buenos Aires Report Category: Livestock and Products Prepared By: Kenneth Joseph Approved By: Melinda Meador Report Highlights: Argentine beef exports in 2020 are projected down at 640,000 tons carcass weight equivalent as lower prices and animal and human health issues generate negative trade dynamics. Lower exports will be reflected in marginal growth expansion of the domestic market in 2020. FAS/USDA has changed the conversion rates for Argentine beef exports. THIS REPORT CONTAINS ASSESSMENTS OF COMMODITY AND TRADE ISSUES MADE BY USDA STAFF AND NOT NECESSARILY STATEMENTS OF OFFICIAL U.S. GOVERNMENT POLICY Conversion Rates: Due to continuing efforts to improve data reliability, the “New Post” trade forecasts reflect new conversion rates. Historical data revisions (from 2005 onward) will be published on April 9th in the Production, Supply and Demand (PSD) database (http://www.fas.usda.gov/psdonline). Beef and Veal Conversion Factors Code Description Conversion Rate* 020110 Bovine carcasses and half carcasses, fresh or chilled 1.0 020120 Bovine cuts bone in, fresh or chilled 1.0 020130 Bovine cuts boneless, fresh or chilled 1.36 020210 Bovine carcasses and half carcasses, frozen 1.0 020220 Bovine cuts bone in, frozen 1.0 020230 Bovine cuts boneless, frozen 1.36 021020 Bovine meat salted, dried or smoked 1.74 160250 Bovine meat, offal nes, not livers, prepared/preserve 1.79 * Exception Argentina - Exports of HS 160250 are excluded. Pork Conversion Factors Conversion factor HS Code Description (T to CWE) 020311 Carcasses/half-carcasses, fr/ch 1.00 020312 Bone-In hams, shoulders and cuts thereof, fr/ch 1.00 020319 Other pork cuts, fr/ch 1.30 020321 Carcasses/half-carcasses, frozen 1.00 020322 Bone-In hams, shoulders and cuts thereof, frozen 1.00 020329 Other pork cuts, frozen 1.30 021011 Bone-In hams, shoulders and cuts thereof, processed 1.10 021012 Bellies (streaky) and cuts thereof, processed 1.20 021019 Other meat of swine, processed 1.16 160241 Hams and cuts thereof, prep/pres 1.30 160242 Shoulders and cuts thereof, prep/pres 1.30 160249 Other meat of swine including mixtures, prep/pres 1.30 Technical Note The definition of Carcass Weight Equivalent/Product Weight Equivalent remains the same. All quantities (beef and pork) noted are in Carcass Weight Equivalent (CWE) unless otherwise noted as are Product Weight Equivalent (PWE). CWE is the weight of an animal after slaughter and removal of internal organs, head, and skin. PWE is the actual weight of the meat product exported. Cattle: Argentine cattle slaughter for 2020 is expected at 13.6 million head, 300,000 head lower than USDA’s 2019 official number. The recent reduction in the Chinese demand for imported animal protein is expected to have a downward impact on local beef exports and production in 2020. Argentine beef exports in 2019 accounted for almost 25 percent of beef production, one of the highest on record. Exports to China accounted for 19 percent of the country’s beef production in 2019. Lower beef exports, weaker free on board (FOB) prices, large beef stocks in cold storage and a domestic market which continues to suffer high inflation and contraction is expected to result in a smaller number of slaughtered cattle. January 2020 slaughter numbers and lower expectations for February already indicate a reduction. In the last quarter of 2019, beef FOB prices to China spiked from already high levels in response to strong demand for imported pork and beef to fill supply gaps caused by a diminished domestic output of pork due to African Swine Fever outbreaks. Contacts indicate that at this point, Chinese authorities, concerned about growing inflation, implemented a series of measures relative to imported meats which resulted in Argentine export prices suffering a drop of about 30 percent in late-November/January 2020. Immediately thereafter, in early 2020, China’s consumption was further impacted by the coronavirus crisis, however, traders indicate that business negotiations are ongoing albeit at lower price levels than in 2019. In 2019, the Argentine Animal Health Service replaced its 1973 cattle grading system for slaughter and carcasses. The new system uses sex, age and weight for classification along with carcass conformation, fat level and bruising. Light steer or heifers are categorized as up to 4 teeth and 390 live kilos max. The calf category, which is one of the categories utilized by FAS/USDA in its PSD to classify the different categories slaughtered, was eliminated. The authorities indicate that this system will ensure producer payments are based on the quality of the cattle/carcass. Based on the new classification, Post estimates female slaughter for 2020 at 6.45 million head, somewhat lower than in 2019 due to the large slaughter of females in 2019 and exports to China, consisting primarily of cow meat, are expected to slow. Beef: Argentine beef production for 2020 is forecast at 3.05 million tons, 70,000 tons lower than previously projected as cattle slaughter is expected to drop 2 percent, reflecting lower exports and FOB prices to China. Domestic consumption is expected to increase marginally at 2.4 million tons as lower exports and lower FOB prices which, depending on the cut, may provide more profitable options for domestic sales. Argentine exports of beef in 2020 are forecast at 640,000 tons, carcass weight equivalent (using the new conversion factors), a notable drop from Post and USDA’s previous projections due to the implementation of the new conversion factors (previously 1.4 for all beef exports from Argentina to the new one which is 1.36 for boneless beef and 1.0 for bone in beef) and the negative dynamics in the Chinese market due to animal and human health problems. Despite some industry sources belief that any shortfall in beef exports to China will be absorbed domestically, some large local slaughter operations are seeking to increase shipments to the Russian Federation and Chile but indicate significant competition from other exporting countries in the region pursuing the same markets. In 2020, Argentine FOB prices for beef are expected to fall below that of 2019 in response to impacts from the Chinese market. Other negative factors impacting beef exports this year include a December 2019 increase in beef export taxes which rose from 3 Pesos per dollar (which at that time represented 5 percent) to a fixed 9 percent as well as the currency exchange rate, outpaced by the rise in inflation, which is further eroding Argentina’s competitiveness in global markets. Although difficult to estimate China’s protein demand for imported meats over the next few months, shipments to China for 2020 are adjusted downwards at 340,000 tons PW, 86,000 tons product weight (PW) lower (or the equivalent to roughly 115,000 tons cwe) than in 2019. Argentine beef exports to China in 2019 totaled 426,000 tons product weight PW, almost 75 percent of Argentina’s total beef exports. Brokers indicate that shipments in January 2020 reflected commitments made before the late 2019 price change with exports in February and March expected to show a downward trend. Based on current market dynamics, Argentine beef exports to China could start to catch up as of April, with average monthly exports for the rest of 2020 of about 30,000 tons PW, lower than the 35-50,000 tons PW exported in April/December 2019. Brokers expect Argentine FOB prices in 2020 to remain lower than last year. The Economic and Trade Agreement between the United States and the People’s Republic of China, Phase One agreement for a dramatic expansion of purchases of U.S. pork, poultry and beef may also have an impact on import volumes and prices in China. The following table shows monthly average prices of Argentine beef to China (US$/metric ton): Date/Period US$/MTon January 2020 $4,672 December 2019 $5,525 AVG 2019 $4,850 AVG 2018 $4,170 AVG 2017 $4,215 Argentine beef exports to the E.U., under the Hilton Quota, could also be affected in the second part of 2020. In mid-January, the National Animal Health Service requested that cattle producer’s reregister to export beef under the Hilton Quota. The protocol, in place for more than 40 years, requires beef from Argentina to be grass-fed, however, beef cattle production in Argentina has changed radically in the past 20 years with most cattle finished in the last 100-140 days on grain or silage. Due to the reregistration, which was postponed until August 2020 because over 80 percent of the operations failed to comply, meat packers believe there will be a lack of steers to fill the quota in 2020/21. Most sector contacts believe that Argentina and the E.U. should negotiate a change in the quota protocol to include grain-fed beef, like that of the U.S. and Australia. Argentina already exports grain-fed beef to the E.U. under the 481 Quota (Grain-Fed Beef Quota). Statistical Tables Animal Numbers, 2018 2019 2020 Cattle Market Begin Year Jan 2018 Jan 2019 Jan 2020 USDA USDA USDA Argentina New Post New Post New Post Official Official Official Total Cattle Beg. Stks 53715 53715 53805 53805 53685 53685 Dairy Cows Beg. 1850 1850 1850 1850 1850 1850 Stocks Beef Cows Beg. Stocks 21900 21900 21780 21780 21500 21500 Production (Calf Crop) 14650 14650 14780 14780 14900 14900 Total Imports 0 0 0 0 0 0 Total Supply 68365 68365 68585 68585 68585 68585 Total Exports 0 0 0 0 0 0 Cow Slaughter 4150 6110 4500
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