It’s long been said that U.S. cattlemen produce for a global market. And indeed they do. While the forecast is for the U.S. beef and cattle markets to remain volatile as they respond to ever tightening supplies, on the international front however, it’s Chinese beef demand that will drive market dynamics.
While the U.S. cattle and beef markets should continue to offer profit opportunities, it’s the actors on the global stage that will set the larger tone for beef prices in 2014. That’s according to a Rabobank report that both looks at market dynamics in the first quarter of 2014 and peers into the future of the global beef trade.
Rabobank’s Food & Agribusiness Research team says that beef market fundamentals remain positive, with prices driven up across the globe in the first quarter of 2014 by firm demand as well as further tightening supply due to drought-induced herd retention in the U.S. and adverse weather conditions in Brazil and Australia – the three main beef exporters. Combined with fluctuating exchange rates, these events have impacted competitive positions in export markets, with Brazil and Australia gaining export share in the first quarter at the expense of the U.S.
U.S. market volatile
For the U.S. cattle and beef markets, volatility was the biggest factor in the first quarter. Cash fed cattle prices hit a record $150- to $152/cwt and feeder cattle and the beef cutout also reached stratospheric heights.
“The key driver for the record cutout values was the surge in the prices of beef trimmings, beef chucks and rounds that could be used as alternative sources for ground beef,” the report says. Fed cattle chucks and rounds heading to the grinder is the result of a steep decline in cow and non-fed slaughter levels, the report says.
Rabobank economists forecast that fed cattle prices have reached a seasonal peak and will tail off in a normal seasonal pattern into the summer. Summer lows are projected in the $130/cwt. level for late July and early August.
“Feeder cattle prices may already be near the seasonal low,” the report suggests, “which could be delayed until as late as May, but are not expected to be measurably lower that the current trading range.” Given the short supply of feeders ready to go on feed, lower feed grain prices, continued excess feeding capacity and a return to profitability in the cattle feeding sector, the bank’s economists think prices will rise toward a seasonal high in the fall, with current projections suggesting the cash register will ring somewhere around $190 on average.
China leads globally
The bank says global beef demand growth will continue to come mainly from China. Although 2014 imports in China are not expected to reach the growth levels experienced in 2013, they will grow as Chinese farmers take little interest in government-supported production expansion and strong profits, and the market opening for Australian chilled fresh beef products. Chinese market opening to Brazilian beef may happen imminently.
“Prospects for the global beef industry remains positive in the second quarter, with further possible upside due to continuing pressured beef supply and scarce supply of competing proteins which will continue to impact competitive positions,” explains 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.”
Here are the bank’s regional outlooks:
- U.S.: The impact on the hog market due to the rapid spread of PEDv will be the wildcard in the coming months. The shortage in hog slaughter could have a significant impact on total meat supplies, strengthening beef demand during the spring grilling season and into summer.
Australia: Poor climate conditions are keeping slaughter levels historically high, but strong international demand has supported record boxed beef exports in the first quarter. The latest seasonal outlook predicts a drier-than-normal period for Queensland and northern NSW and a continued high flow of cattle to markets is expected.
- Brazil: Expected continued strong demand, both domestic and export, will result in firm cattle prices in the second quarter of 2014 and likely beyond, even in periods of strong supply. Domestic demand is likely to increase on the back of the World Cup and presidential elections, while exports will be driven by the continued depreciation of the U.S. dollar.
New Zealand: Export prospects are positive with strong demand likely from the U.S. and China. However, the relatively high New Zealand dollar continues to put downward pressure on returns, eroding international competitiveness.
- Canada: The long and extreme winter has been taxing, forcing increased feed usage. This escalation, in conjunction with cattle shipments to the U.S., means Canada is rapidly going through their available cattle supply with limited interest in herd expansion.
- Argentina: Exports are expected to remain low as government limitations on export markets continue, with the aim of keeping domestic meat prices low.
- China: Ongoing shortages in the domestic market will continue to support rising imports of frozen beef, with Australia remaining the biggest supplier accounting for 53% of total import volume in 2013.
- Mexico: Mexico’s beef sector will continue operating under tight margins into the second quarter of 2014 as beef and cattle prices remain high and lackluster consumption continues.
- EU: With EU markets more or less in equilibrium, beef prices are expected to hold firm at their current levels. Supply of cattle will remain stable while import growth will continue its steady increase of about 10%.
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