February 28, 2012

 

EU expects rising beef, cattle prices

 

 

The EU expects higher beef and cattle prices with estimations of a drop in output for the next two years amid signs of farmers rebuilding herds.

 

Beef output in the EU, the world's third-largest producer, will fall by 3.8% to 8.06 million tonnes this year, and by a further 0.7% in 2013, according to the European Commission.

 

The declines, the first since 2009, will be driven by "sustained" demand for live animals, of which Russia and Turkey are big buyers and the impact of lower slaughter rates for heifers - future breeding stock, signalling potential return to herd increases.

 

"Domestic (beef) production is expected to decrease noticeably in 2012," the EC said in a thrice-yearly agriculture briefing.

 

The "limited" supply of beef and fattened cattle means "prices for carcases of all categories, and live animals, are expected to remain high throughout 2012", the report said.

 

It will also return the region to being a net importer, with shipments rising 10.4% to 316,000 tonnes, as a consequence of tight domestic availability, and also reflecting a recovery in shipments from South America.

 

While the likes of Argentina, Brazil and Uruguay being historically strong exporters, their shipments fell last year, largely due to growing domestic demand, but also reflecting a squeeze in the region's own cattle supplies following, in Argentina, three years herd liquidation amid drought.

 

The EU forecasts echo those of the USDA on Friday (Feb 24), forecasting a 4% drop in beef output to 25.1 billion pounds this year, and signalling that a further decline looked likely in 2013 too, given a continued decline in the beef cow herd

 

"With a smaller cow herd at the beginning of the year and only a small increase in number of heifers expected to calve during 2012, a further decline in the calf crop can be expected," USDA livestock analyst Shayle Shagram said. "This will lead to tighter cattle supplies moving into 2013 and it is unlikely that calf supplies could support an increase in beef production before late 2014 or 2015."

 

In the US, the squeeze will be reflected in higher prices of cattle, with the value of Midwest steers set to rise by up to 12% from last year's record of US$114.73 a hundredweight.

 

Retail prices of so-called choice beef will also rise, although "resistance to high beef prices may limit gains", Shagram said, forecasting retail prices for choice beef rising from US$4.83 a pound to slightly over US$5 a pound.

 

The unwillingness by consumers to pay more was seen by Paragon Economics and Steiner Consulting as behind a drop in the US slaughter rate to below 600,000 head in three of the last four weeks, "as packers try to reconcile limited market-ready cattle in feedlots with end-user resistance to paying up for boxed beef".

 

Meanwhile, future supplies of market-ready, fattened cattle seemed to be more constrained after separate US data on Friday showed the number of feeder animals placed on feed last month falling by 2.2%, more than analysts had expected.

 

The total feedlot population was, at 11.811 million head, lower than expected, despite being lifted above levels, a year ago, by the large influx in autumn as ranchers in the drought-hit southern Plains even sold young cattle to trim forage bills.

 

"The USDA report will likely be viewed as moderately bullish," Paragon Economics and Steiner Consulting said.