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Global beef market to regain momentum in Q3

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The latest Rabobank Beef Quarterly report indicates a revival of momentum for the global beef market.

Beef Quarterly Q2 2014, the new report from agribusiness banking specialist Rabobank reveals that once the current phase of high beef supply works itself out, prices are expected to strengthen on the back of tight supply of competing animal proteins.

Impacting factors for these positive developments to begin include rainfall in Australia and the continued drought in US and Brazil pushing more cattle through the system to a lesser extent, followed by Indonesian import development during the July Ramadan festivities and Chinese imports towards the high season at the end of 2014.

Rabobank Analyst Albert Vernooij sees the continuing positive market fundamentals to be encouraging for producers’ margins. However, the upside might be limited with lower supply of feeder cattle and high production costs in the long term. While the current stabilisation gives processors room to regain margins, prospects are likely to be impacted by a potential tight supply in most producing regions.

Regional Outlooks

EU: Expected to stabilise around the current levels into the summer, EU beef prices with see some potential upside later in the year due to the combination of stable supply, continuing strong export demand and relatively high-priced competing proteins.

US: Q1 saw the US cattle and beef market reach new heights in price levels, subsiding a little in Q2. However, with more fed cattle entering the market soon, seasonal price pressure is expected to weigh down the market. Feeder cattle and calf prices continue to push into new all-time record highs in the upper USD 200 to mid- USD 210 range.

Australia: The market continues to look up in Australia with total cattle slaughter during the first four months of 2014 increasing 12% YOY on the back of dry conditions. Boxed beef exports have, as a result, reached record levels throughout the first five months of 2014. Both the short and medium term outlook for supplies and prices is heavily dependent on rainfall.

Brazil: Though the Brazilian beef market faced a minor crisis in Q2 2014 with the detection of a new atypical case of BSE in Mato Grosso, the early reporting of BSE allowed Brazil to keep its ‘insignificant risk’ status. While this has led to a few international embargoes, export numbers continue to be strong and Rabobank expects prices to recover in Q3 and Q4.

Canada: Record price levels in the US have been drawing a lot of Canadian cattle, and extreme winter weather has caused very expensive cattle maintenance and feeding conditions. Year-to-date feeder cattle exports to the US are therefore currently running 44% above year ago levels; however a sharp decline in shipments is expected in the second half of 2014.

Argentina: The poor run in the exports segment is the result of an uncompetitive exchange rate, a 15% export tax and the cumbersome process of obtaining export rights. Rabobank expects production to increase seasonally, while demand will weaken as a result of the generally recessive economic environment.

China: China’s beef imports reached 101,000 tonnes in the first four months of 2014, an increase of 34% YOY, but lower compared to the astonishing growth of 380% in 2013. Even with this volume, beef imports to China are historically very high.

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