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Rabobank expects Chinese market to lead strong beef demand globally

Supplier News

The Rabobank Q1 Beef Quarterly 2014 indicates market fundamentals will remain very positive for the global beef industry.

Firm demand combined with tightening of supply due to drought-induced herd retention in the US and some adverse weather conditions in Brazil and Australia - the three main beef exporters - pushed prices up across the globe in Q1 2014. Fluctuating exchange rates have also impacted competitive positions in export markets, with Brazil and Australia gaining export share in Q1 at the expense of the US. On the demand side, beef demand growth will continue to come mainly from China.

Rabobank Analyst, Albert Vernooij explains that prospects for the global beef industry remains positive in Q2, with further possible upside due to continuing pressured beef supply and scarce supply of competing proteins, which will continue to impact competitive positions. He adds Brazilian cattle prices and exports have surged to record levels, and Australian droughts have encouraged historically high slaughter levels to meet global demand.

Regional Outlooks

US: Volatility was the biggest factor impacting the US cattle complex in Q1 2014. The exploding hog market due to the rapid spread of PEDv will be the wildcard in the coming months. The shortage in hog slaughter could have a significant impact on total meat supplies, strengthening beef demand during the spring grilling season and into summer.

Australia: Poor climate conditions are keeping slaughter levels historically high, but strong international demand has supported record boxed beef exports in Q1 limiting the price fall. The latest seasonal outlook predicts a drier-than-normal period for Queensland and northern NSW and a continued high flow of cattle to markets is expected.

Brazil: Continued strong demand, both domestic and export, will result in firm cattle prices in Q2 2014 and likely beyond, even in periods of strong supply. Domestic demand is likely to increase on the back of the World Cup and presidential elections, while exports will be driven by the continued depreciation of the US dollar. Rise in cattle prices has been passed on to wholesale beef prices, which could cause migration to other meats during the course of the year.

New Zealand: The New Zealand beef industry had a positive start to 2014 with good seasonal conditions, strong demand likely from the US and China, and significantly tighter supplies from Australia. However, the relatively high New Zealand dollar continues to put downward pressure on returns, eroding international competitiveness. Higher returns at the farmgate will be dependent on processor willingness to attract additional cattle beyond the usual culling period.

Canada: The Canadian cattle industry has faced a long, extreme and taxing winter, forcing increased feed usage. This escalation, in conjunction with cattle shipments to the US means Canada is rapidly going through their available cattle supply with limited interest in herd expansion. However, the slowdown in growth of slaughter cow exports to the states suggests liquidation has slowed, indicating stability and growth with improved weather conditions.

Argentina: Exports are expected to remain low as government limitations on export markets continue, with the aim of keeping domestic meat prices low. The government policy of limiting the volume of exports is likely to continue in the coming months.

China: The Chinese beef market will remain tight in 2014 with beef cattle remaining an unattractive proposition for farmers despite high local prices, strong profitability along the supply chain and increased government support. Ongoing shortages in the domestic market will continue to support rising imports of frozen beef, with Australia remaining the biggest supplier accounting for 53% of total import volume in 2013.

Mexico: Current conditions provide an incentive for Mexican feeders to retain cattle with declining feed costs and improving pastures. Mexico’s beef sector will continue operating under tight margins into Q2 2014 as beef and cattle prices remain high and lacklustre consumption continues.

EU: The EU beef market remained steady in Q1 with supply and demand at par, resulting in stabilising prices for prime beef and seasonally recovering prices for ground beef due to the lower availability of cows going into spring. With EU markets more or less in equilibrium, beef prices are expected to hold firm at their current levels. Supply of cattle will remain stable while import growth will continue its steady increase of about 10%.

The full report can be accessed online on the Rabobank website.

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