July 7, 2014
World beef market to regain momentum in 3Q14 despite challenges
The international beef market will regain a positive momentum during the third quarter of 2014, Rabobank states in a Beef Quarterly Q2 2014 report.
The development could strengthen prices, as supply of competing animal proteins tighten. The wildcards for these positive developments are rainfall in Australia, and, to a lesser extent, the continual drought in US and Brazil pushing more cattle through the system.
Indonesia's import development during the July Ramadan festivities and Chinese imports towards the high season at the end of 2014 will also have unknown impacts. In addition, relatively high prices might lead to consumers trading down to pork and poultry.
"The continuing positive market fundamentals will be encouraging for producers' margins", explained Rabobank analyst, Albert Vernooij. "However, longer term, the likely lower availability of feeder cattle and high production costs might limit the possible upside. For processors, the current stabilisation gives them room to regain margins, but prospects are less positive due to the approaching tight supply in most producing regions".
In the meantime, EU beef prices are expected to stabilise around the current levels into the summer, with some potential upside later in the year due to the combination of stable supply, continuing strong export demand and relatively high-priced competing proteins.
After reaching all-time record price levels during Q1, the US cattle and beef markets have subsided slightly during Q2. Going forward, seasonal price pressure is starting to weigh on the market along with expectations that more fed cattle will be making their way to market soon. Feeder cattle and calf prices continue to push into new all-time record highs in the upper US$200 to mid-US$210 range.
Australia's total cattle slaughter during the first four months of 2014 increased 12% on-year due to dry conditions. As a result, boxed beef exports have reached record levels throughout the first five months of 2014. Both the short and medium term outlook for supplies and prices is highly reliant on rainfall.
In the second quarter of 2014, Brazil's beef market was challenged by both the fresh discovery of BSE in Mato Grosso and rising production costs. While early reporting of BSE allowed Brazil to keep its 'insignificant risk' status, some international embargoes ensued. Still, strong exports remain and Rabobank expects prices to recover in Q3 and Q4.
In the meantime, record price levels in the US have been drawing a lot of Canadian cattle, and extreme winter weather has lead to costly cattle maintenance and feeding conditions. As a result, year-to-date feeder cattle exports to the US are currently running 44% above year ago levels, a pace not expected to continue while a sharp drop in shipments is expected in the second half of 2014.
Lastly, China's beef imports reached 101,000 tonnes in the first four months of 2014, an increase of 34% o-year, but lower, compared to the astonishing growth of 380% in 2013. Even with this volume, beef imports to China are historically very high.
