Global and local factors drive record beef prices around the world – Rabobank Report
A combination of global and localized factors is creating a “very tight” global beef cattle market – with high demand and record prices in many parts of the world – and this coincides with a fundamental shift in the dynamics of the international market, says Rabobank in a recently released report.
In its Q2 Beef Quarterly, the agri-food banking specialist says the global beef market is so tight that localized disruptions – including droughts and increased consumer demand in some countries or regions – are now having a much greater impact. drama on world trade.
“With the growth in demand (for beef) and in global trade, the pressures created in the system now mean that what could once be considered slightly abnormal seasonal conditions (for example) are now causing major changes. to the markets, ”the report says.
Report co-author Angus Gidley-Baird, senior animal protein analyst at Rabobank, explains that the local drivers who are fueling high beef and cattle prices in some countries – like herd rebuilding after drought in Australia and the reopening of the food service sector in the United States. – will eventually correct and lead to a price adjustment.
“However, with the tight global supply situation – supported by Chinese demand which is expected to remain strong – we believe the global market has made fundamental progress,” he said.
The report states that the major globally localized factors currently impacting the global beef market are high beef prices in the United States, seasonal delays in slaughtering Brazilian cattle, and reduced supply. in Europe.
For the United States, Gidley-Baird said, the country’s beef sector was squarely in a demand-driven market, with April 2021 wholesale prices 18.5% higher than the same time in 2019 (providing a comparison before supply disruptions due to COVID in 2020 and panic buying), while retail prices were 11.5 percent higher.
“This is the result of a number of factors,” he said, “including renewed competition between restaurant and retail sparked by the reopening of the US economy, combined with the season of grills, consistently high consumer incomes and strong exports, ”he said.
For Brazil, a delay in seasonal rains had led to a decline in livestock supplies, forcing processors to push up cattle prices and maintain supplies, especially given demand from the import-hungry Chinese market. While across the EU, cattle supplies are shrinking – reflecting the low profitability seen in the sector last year due to the effects of COVID.
“EU beef carcass prices have firmed since the fourth quarter of 2020, with the average EU beef carcass price currently up 7% from the same period last year Said Mr. Gidley-Baird.
In China, according to the report, the slow growth in domestic beef production – which was unable to keep up with local consumption growth triggered by the substitution of beef for pork during the outbreak of African swine fever – had led to a rise in beef. imports in recent years.
“While some of the beef consumed was a substitute for pork and will return when pork production resumes, we anticipate that China’s strong demand for beef will remain as new markets are established,” Mr. Gidley said. Baird. “This will continue to stimulate imports of Chinese beef from the world market.”
Record-breaking beef supply in Australia has also fueled the tight global market, according to the report, with successive years of drought and massive livestock liquidation resulting in the country’s lowest beef herd in 30 years.
Prices for young Australian cattle had jumped nearly 30% year-over-year in February 2020 and since then have risen another 20% until February 2021, according to the report.
Mr Gidley-Baird said increases in livestock prices had been driven significantly by improving seasonal conditions in 2020, which continued into the current year. These had seen intense buying competition from producers seeking to replenish their properties and generate value through increased pasture production.
“While lower volumes and higher prices make it harder to compete in the global market, the tight market situation works in Australia’s favor and creates less resistance to our high prices,” he said. declared.
“We believe current cattle prices in Australia will decline as the number of cattle increases and producer demand dissipates. However, as the supply chain overcomes the disruption here and consumers adjust their price expectations, we believe the market will adapt and a new baseline will be established. “
Indicating that the Australian sector may start to see demand from cattle producers decline, the balance of buyers in the weaned cattle market is starting to return to normal, the report said.
“The ‘pendulum seems to be swinging’ with a more normal equilibrium starting to return as producers retreat and ranchers take a more active part of the market, seeing a greater percentage of cattle heading to feedlots,” M said. Gidley-Baird.
“Compared to last year, when growers were the biggest buyers of the Eastern Young Cattle Indicator (ECYI) weaner category for many months, the first three months of 2021 saw them occupy an average of 39% of the market. , with (lot) feeders at 50 percent, ”he said.
However, producers were still paying premiums – around 6 percent – above the market average. “This continues to support livestock prices,” Gidley-Baird said.
Australian cattle slaughter numbers remain very low, according to the report, with East Coast cattle slaughter in April 2021 down 30% from the same period last year and 31% from the five-year average.
Beef exports also remained weak, reflecting lower production levels. April 2021 exports – of 72,502 tonnes shipped weight (swt) – were down 22 percent from the previous year and 11 percent from the five-year average.
Higher prices and a different product offering, with fewer cull cows in the system, had seen Australian exports refocus slightly, the report said.
“The share of total Australian beef exports to China has increased from 24% in 2019 to 17% year-to-date and the share destined for the United States has increased from 20% to 15% during the same period. period. Meanwhile, volumes to Japan and South Korea increased slightly in the first four months of 2021, ”said Mr. Gidley-Baird.
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