The global beef market is set up to keep U.S. cattle prices strong.

Burt Rutherford, Senior Editor

October 4, 2014

5 Min Read
Rabobank Report: World Beef Supplies Remain Tight

“Clearly, the livestock market we have had in the U.S. and North America collectively this past year is like nothing we have ever seen before,” says Don Close, beef market analyst with Rabo AgriFinance. And, according to a quarterly beef market analysis released by the international bank, here’s the good news: in spite of the unprecedented price levels seen throughout the cattle and beef complex, demand for both domestic and export beef continues to show no measurable evidence of slowing down.

Forecasting consumer behavior is fraught with uncertainties, so whether or not beef demand continues its surprising strength remains to be seen. While forecasting the behavior of cattle producers is equally chancy, market fundamentals make the price outlook for the North American cattle industry for the rest of 2014 and into 2015 very bullish.

“The safest assumption with regard to the market outlook is that the extreme volatility will continue for the foreseeable future,” the Rabobank report says. “Replacement cows look set to remain in exceptionally tight supply. Indications suggest that feeder cattle prices will continue to trade either firm to higher. A large supply of U.S. feedgrains and feedstuffs is all but guaranteed and the outlook for fed cattle prices remains solid.”

What’s more, cattle numbers will remain tight throughout North America for the foreseeable future, Close told cattle feeders recently. Looking north, imports of Canadian feeder cattle to the U.S. through August are 40% higher year over year. That’s due partly to torrid feeder cattle prices in the U.S., but also to the mandatory country of origin labeling laws in the U.S., which encourage imports of feeder cattle over fed cattle, according to Rabobank.

In addition, Close says cattle on feed numbers in Canada are up 8%-10% over a year ago and 3,000 to 5,000 Canadian cows come to the U.S. every week for slaughter. With those numbers in mind, he says Canada “has cleaned the deck. They are out of potential supply until we get into new-crop calves.”

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Likewise for Mexico. Currently, imports of Mexican feeder cattle are running 13% higher year over year, Close says. “And to make up that available supply of 13%, the percentage of heifers in that mix is up 20%. So not only are they empty of supply, they’re robbing the potential cow herd as a means to repopulate numbers.”

Peering across the salty foam, the other major suppliers of imported beef to the U.S. are having supply problems as well. Northern Australia has been gripped by a debilitating drought, forcing massive liquidation. In Fiscal 2013-14, 8.3 million cattle were slaughtered in Australia, the second year in a row that total cattle slaughter topped 8 million, according to the Rabobank report. “This was the first time that there were two consecutive years of slaughter above 8 million head in over 35 years,” the report says.

New Zealand cattle slaughter is also running higher, according to the Rabobank report. Cattle slaughter for May, June and July hit 700,000, 12% higher than the same period in 2013. Cattle supplies will contract seasonally for the rest of the year and with more than half of New Zealand exports going to the U.S., the willingness for U.S. consumers to pay higher prices will impact the margins for the New Zealand beef industry.

U.S. cow slaughter has taken a nosedive, however. Subtracting the Canadian cows, U.S. beef cow slaughter is down 17% from a year ago, Close says. “We’ve had weeks where beef cow slaughter was down 20% where we’ve finally run the well dry and this phenomenal surge in feeder cattle prices has sent that economic signal to retain cows.”

That has prompted a debate among industry analysts—When the bawling is over and weaning is done, will producers send open cows to town and capitalize on remarkably high cull cow prices or will the lure of a torrid feeder cattle market make them more forgiving?

“I’m in the camp that they (cow-calf producers) are going to be so forgiving you can’t believe it,” Close says. “I think they’re going to retain everything they possibly can.”

If that’s the case, Close says 90% lean trimmings should continue to trade at record-high prices. “The take-away message is this: if we don’t have the available supply of lean products domestically and we no longer have our residual supplier of Australia and New Zealand, the 90s market is going to stay incredibly strong for an undetermined amount of time. The result of that is used cow prices are going to stay phenomenally good,” he says.

That doesn’t mean the cattle market won’t be volatile and won’t eventually turn around. “Markets are like airplanes—we haven’t left one up there yet,” Close says. “But we are going to see this thing stay incredibly strong. I think it will provide opportunities for those of you who are on a normal liquidation cycle and I think it will be incentive for producers who are holding cows to maintain them.”

That ripples throughout the market. The North American cattle complex has significantly fewer cattle and plentiful supplies of feed and forage. “With that magic combination, what on earth is going to cause feeder cattle to break?  I don’t think we have seen the top of this market. It will be very strong again next year,” Close concludes.

 

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About the Author(s)

Burt Rutherford

Senior Editor, BEEF Magazine

Burt Rutherford is director of content and senior editor of BEEF. He has nearly 40 years’ experience communicating about the beef industry. A Colorado native and graduate of Colorado State University with a degree in agricultural journalism, he now works from his home base in Colorado. He worked as communications director for the North American Limousin Foundation and editor of the Western Livestock Journal before spending 21 years as communications director for the Texas Cattle Feeders Association. He works to keep BEEF readers informed of trends and production practices to bolster the bottom line.

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