April 20, 2009

Global beef production is projected two percent lower on reduced cattle supplies, higher input costs and lower returns.

Cattle supplies in the US and Argentina are projected lower, which would lead to tighter beef supplies, and US cattle inventory is currently at its lowest since 1959.

Increased Brazilian slaughter in recent years has reduced supplies and boosted prices, constraining domestic and foreign consumption growth. The sector is also plagued by bankruptcies and plant closings by key packers.

Argentina faces a shortage of feed reserves, a smaller corn crop and the reduction of thousands of hectares of pastures which are either turned into cropland or affected by drought.

China is also affected by rising input costs and low returns, while expansion in EU and Canadian production is based on a decline in feed grain prices and higher slaughter.

Due to the global recession, consumers are expected to shift to cheaper protein sources such as pork and poultry and fish, have fewer meals at restaurants and eat smaller portions.

Initial survey data shows that when faced with diminished incomes, consumers will reduce eating out thus reducing beef consumption. Mexico and South Korea's consumption will decrease as they face higher import prices partly due to weaker currencies against the US dollar.

Recession-driven declines in consumption will weaken Mexico and South Korea's import demand. Russia is also seen to import less as its consumption decreases.

But the US is seen to import more due to tight domestic supplies and a stronger dollar, while EU imports are also revised upward as more Brazilian farms are approved to export beef to the EU.

Nearly no major beef exporter will avoid the global slump in import demand. Despite an optimistic view of sales to the EU, a reduction in Russian and Middle Eastern imports will lead to the lowest level of Brazilian exports since 2004.