In a report on the global beef market during the first quarter of 2014, Rabobank is projecting strong market fundamentals experienced in the first three months of the year to remain in place going forward, driven most by demand in China and tight supply in the United States, Australia and Brazil.
“Prospects for the global beef industry remains positive in Q2, with further possible upside due to continuing pressured beef supply and scarce supply of competing proteins which will continue to impact competitive positions,” explained Rabobank analyst Albert Vernooij. “Brazilian cattle prices and exports have surged to record levels, and Australian droughts have encouraged historically high slaughter levels to meet global demand.”
Beef demand in China will be in the driver seat going forward. While Rabobank analysts do not project beef exports to China to reach the 380 percent growth levels experienced in 2013, imports will grow due to lack of domestic production growth despite strong profits and support from the government. Australia was the biggest supplier of beef to China in 2013, accounting for 53 percent of the total volume, followed by Uruguay at 29 percent. According to the report, the opening of the Chinese market to Brazilian beef “may happen imminently.”
In the United States, the first quarter of 2014 brought with it record prices for fed cattle and beef cutout values. The key driver in the cutout value, according to Rabobank, was a surge in the prices of beef trimmings, beef chucks and rounds that could be used as ground beef due to steep declines in cow and non-fed slaughter as producers around the country are retaining females in the early stages of herd expansion in the country.
The report says that fed cattle supplies have reached their tightest levels and that prices have reached a seasonal peak of between $150 and $152 per hundredweight and could reach a season low of around $130 per hundredweight in late July or August. Feeder cattle prices, Rabobank says, may already be near a seasonal low and are expected to rise toward the seasonal high prices in the fall of around $190 per hundredweight.
The wildcard, however, is the PED virus affecting the U.S. hog industry. Rabobank says the spread of PEDv could substantially reduce the availability of butcher hogs through the summer months and strengthen beef demand during the spring and summer.
Other regional outlooks include the following:
Australia: Poor climatic conditions have continued in Australia in 2014 throughout large areas of Queensland and northern New South Wales. According to the report, 79 percent of Queensland, which accounts for 30 percent of Australian cattle, is now declared a drought area. The latest seasonal outlook predicts these areas to remain drier-than-normal going forward. Strong international demand will continue to support prices in 2014.
Brazil: Low supply, due to a drought that hit some cattle producing regions in Brazil during what is normally the wet season, coupled with strong domestic and international demand will result in a strong cattle market in Brazil going forward in 2014. Domestic demand is likely to increase as a result of the World Cup in June and president elections in October. Exports are expected to be driven by the continued depreciation of the real against the U.S. dollar.
New Zealand: Good seasonal conditions throughout most of the summer in New Zealand and strong international demand from the United States and China helped start 2014 on a positive note. However, the relatively high New Zealand dollar continues to affect the country’s international competitiveness.
Canada: The long winter has put a strain on forage supplies and a good growing season will be necessary simply to rebuild reserves. According to the report, Canada experienced a 1 percent decline in cattle inventory compared to 2013 and shows limited interest in expanding the overall herd. Uncertainty regarding the future of the U.S. mandatory country-of-origin-labeling law combined with the severity of the winter, made it difficult to make long-term projections, according to Rabobank.
Argentina: Rising local costs and high cattle prices in dollar terms initially hurt beef exports early in 2014. Exports are expected to remain low due to a strong devaluation of the local currency by the Argentine government.
Mexico: Tight margins will continue in Mexico’s beef sector due to high beef and cattle prices and lack of domestic consumer demand.
EU: The EU beef market remained steady in the first quarter of 2014 and prices are expected to hold firm at current levels. Beef import growth is expected to remain stable at about 10 percent.