June 5, 2008

Global beef prices ready for big increase
   

After years of flatness, beef prices are now ready for a boom due to rising grain costs and demand as well as declining supplies.

The US and EU are expected to lead the boom as cattle numbers and beef output fall in reaction to high grain costs.

A sustained period of sharp cattle price and beef inflation is going to happen over the next three to four years, said Les Wozniczka, chief executive of rural services group Futuris Corp.

Analysts expect US beef prices to rise more than 2 percent in 2008 and to climb by 7 percent in 2009. Meanwhile, beef prices in the EU have already increased 3 percent this year.

High feed prices have boosted slaughter rates in the EU, leading to a large supply of meat, said Nicholas Brooks, head of research and investment strategy at ETF Securities. However, he said supplies have dropped to a point that prices could start moving upwards again.

The US has already reduced its cattle herd to 96.67 million head in January due to high feed costs.

Chicago Mercantile Exchange futures price for June 2009 US cattle reached US$106 per cwt, up from the recent price of US$94. However, agricultural economist at Iowa-based Paragon Economics Steve Meyer, expects the real increase in US beef prices to take place from 2009-2011.

The rise may be most modest in Australia, with prices expected to start increasing at around the end of 2009. That is due to the country's strong currency and the prospect of the re-entry of US beef in Japan and South Korea, which will affect sales, said Peter Weeks, chief market analyst at Meat & Livestock Australia.

High demand from China and India would also affect beef prices. China's per capita beef consumption has risen from less than 2 kg in 1985 to 5.7 kg in 2006, while India's beef consumption has climbed to 1.5 kg per capita.