The U.S and Mexico have been integral trading partners since NAFTA went into effect in 1994 (Twine and Rude 2012, Peel, Matthews and Johnson 2011)i ii. Already in the 1990’s Mexico was a major importer of U.S. beef. By 1997 Mexico replaced Canada as the second largest export destination for U.S. beef behind Japan. However, recently Mexico has emerged as a major source of beef imports into the U.S. (FAS 2013)iii. In addition, the changing consumption patterns of beef and beef trade between the U.S and Mexico hold far reaching implications for the cattle and beef industries.
U.S. cattle imports from Mexico are significantly greater than the volume of exports (by 26%). Geography makes Canada and Mexico the only significant cattle suppliers to the U.S. market. Cattle imported from Mexico are typically lighter weight grass fed calves with a lower value or price than grain finished U.S. beef. Most beef imported to the U.S. goes directly for processing as ground beef (USDA 2013)iv.
One reason behind the rapid expansion of imports in the U.S. market is the expansion of boxed beef processing in Mexico. Other reasons are high cattle prices in the U.S. beef market and a drought in Mexico. Cattle imports from Mexico in 2012 included the largest number of spayed heifers ever imported. During 2012 the number of steers actually decreased from 2011 totals. This means that recent levels of cattle exports from Mexico are likely not sustainable and represent herd liquidation. The rate of cattle imports into the U.S. dropped sharply since late 2012 and continues to do so in 2013. Total imports of Mexican live cattle into the U.S. in 2013 are on pace to decrease by more than 40 percent.
Graph 1. Beef Imports to the U.S. from Mexico
Data obtained from USDA, FAS
With Mexican beef prices on the rise in the past 18 months, domestic beef prices in Mexico are now close to U.S. prices. Mexico will likely have diminished levels of cattle exports to the U.S. for several years until they begin to rebuild their herds. This implies the possibility of U.S. cattle producers gaining back some of the lost market share from the increase in Mexican cattle imports. Graph 1 shows the beef imports to the U.S. from Mexico over the last five years with projections through the end of 2013. This decrease in cattle from Mexico presents a potential opportunity for producers in South Dakota to increase profitability this fall as the time for culling cattle approaches. With prices predicted to remain fairly high producers could potentially increase their profitability for cull cows by fattening them up before sale, and could potentially receive fairly high prices due to the lack of supply in Mexico.