As the third quarter comes to a close, the market’s attention turns to the beef supply picture going into the holiday season. One factor that will have some impact in the short term is the availability of imported beef and how that will affect overall beef consumption in the fourth quarter.

Beef imports this year are up, mostly due to a sharp increase in imports of Australian beef. While there are a number of countries that can ship beef to the U.S. four countries account for more than 90% of overall imports. USDA actual trade data is reported with a significant lag (latest numbers are for July) but we can get a sense of how beef imports are trending based on data reported by U.S. Customs.

Through Sept. 28, combined entries of Canadian, Australian, New Zealand and Uruguayan beef were up 13.5% from year-ago levels. But will the year-over-year growth we have seen so far this year be maintained in the fourth quarter? We think that is unlikely and imported beef supplies through the year end will likely contract compared with last year.

This is primarily due to an expected reduction in Australian beef shipments to the U.S. The Australian currency has appreciated sharply vs. the U.S. dollar since spring and this has eroded much of the incentive to ship product to the U.S. market.

Grinding beef prices in the U.S. remain well below year-ago levels. As long as the Australian dollar was weak, this helped blunt the negative impact of falling grinding beef values. Back in March, the price of Australian lean grinding beef was down some 10% year over year in U.S. dollar terms but when converted in Australian dollars, prices actually were up 17%.

No wonder, then, that shipments to the U.S. rose sharply in February, March and April. Currently, however, prices for lean beef are down some 22% both in U.S. dollar and Australian dollar terms. Packer margins in Australia have been squeezed and reduced overall slaughter.

Also important to keep in mind is that the financial crisis and resulting currency shifts caused Australian beef shipments to the U.S. to rise significantly in the fourth quarter of 2008. Based on preliminary data, Australian beef exports to the U.S. in September (product that will be here in about a month) were down some 5.3% from a year ago and 21.6% lower than the five-year average. October and November exports will likely be down 20% and 24%, respectively, implying fourth-quarter U.S. beef imports from Australia will be down about 16% from a year ago, a reduction of about 35 million lbs. (carcass wt.). The U.S. beef market may have many problems going into the holidays, but heavy imports will not likely be one of them.
-- CME Group Daily Livestock Report