December 19, 2016

Rabobank: Increasing beef production to keep prices low


The beef industry will have to stimulate demand, particularly in Asian nations, amid the prospects of increasing production and soft global prices, agricultural lender Rabobank said in its latest beef quarterly report.

With US and Brazilian beef production forecast to increase by a further 3 percent in 2017, the Rabobank Global Beef Quarterly Q4 2016 said supply will continue to dominate.

"The capacity of the market to balance this growth in supply will rely heavily on the ability to stimulate demand, particularly in Asian nations", it said.

"Four key factors will influence the direction of the beef market in 2017: South American growth, space in the US market, China's demand and South-East Asian demand. More recently, three events have also had an impact", said Angus Gidley-Baird, the bank's senior analyst on animal proteins, referring to currency movements, particularly the US dollar and the Mexican peso; the Trans-Pacific Partnership; and increased cattle slaughter in China.

US elections

The report said the US election result has driven currencies. "If the movements in the US dollar and Mexican peso following the US election are any indication of the future, growing US production will struggle to find relief in increased exports. At the same time, the growing Mexican beef industry could find new opportunities in the global market", it said.

On Trans-Pacific Partnership (TPP), the report said its future is "unlikely" or its movement toward implementation is not expected to progress following the US elections. "While there are missed opportunities for beef-trading nations that were in the TPP, it may create opportunities for China to promote its own regional trade agenda", the Rabobank report said.

It also said that cattle slaughter in China have increased, caused by dry conditions in Inner Mongolia and lower dairy prices. While pushing domestic cattle prices down, imports into China have remained competitive due to increased volumes from Brazil. The current higher levels of production are expected to be followed by lower production in 2017, further supporting demand for imports, said the report.

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