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Rabobank: Strong beef markets to continue

Carol Ryan Dumas
Tight cattle supplies, drought in U.S., Brazil and Australia and extraordinary growth in China's beef imports add up to positive fundamentals in the global beef arena.

Continued strength in global beef markets, led by extraordinary growth in Chinese demand and drought in major beef-exporting countries, will continue in the second quarter of 2014, Rabobank stated in its Beef Quarterly report released last week.

Global beef production levels are high, and supplies of fed cattle are tightening. The three main beef exporting countries — Australia, Brazil and the U.S. — are all suffering complications and stress due to drought, said Don Close, Rabobank’s vice president of food and agribusiness research for animal protein.

Brazilian cattle prices and exports have surged to record levels, and Australian droughts have encouraged historically high slaughter levels to meet global demand. Combined with further tightening supplies in the U.S. and scarce supplies of competing proteins, prospects for the global beef industry remain positive, Rabobank reported.

Herd retention in the U.S. from recent drought years and continued drought in West Texas and California — classic cow/calf areas — is keeping supplies tight here. Australia is still suffering extreme drought conditions, and Brazil is still dry, Close said.

China’s demand for beef imports, driven by ongoing shortages in the domestic market, will continue to be the main driver in global demand, although Rabobank doesn’t expect those imports to grow at levels experienced in 2013.

In the U.S, the year opened with tight fed cattle supplies, short supplies for packers and short inventories for end users. Severe winter weather further hampered tight fed cattle supplies, slowing feedyard performance, reducing slaughter and making delivery of beef difficult and often behind schedule, Rabobank reported.

That resulted in an unprecedented price rally in the first quarter. Fed cattle prices skyrocketed from $130 to $132 per hundredweight at the end of 2013 to $150 to $152 from Jan. 1 through the first of March, Close said.

Weather was certainly a driver, with less cattle coming to market, he said.

Cutout prices also jumped to record highs, peaking at $230 per hundredweight. A major driver was the curtailed supplies of lean trimmings, forcing grinders to use chucks and rounds as alternative sources for ground beef, he said.

Another huge contributing factor was the loss of young pigs due to PED virus and the pork supply chain’s fear of a decline in hog supplies for summer. Pork prices rallied to equally dramatic levels as beef, further supporting beef prices, he said.

PED will be the wild card ahead, as it could substantially reduce the availability of butcher hogs through the summer and strengthen beef demand through the grilling season, Rabobank reported.

As weather has improved, feeders have placed more cattle on feed, and there’ll be more fed cattle available late spring through mid summer. Markets have likely seen the high watermark on fed cattle prices, and July and August will likely bring a price sag before recovering in September through the end of the year, he said.

Fed cattle prices were $148 to $150 per hundredweight last week and are likely to be either side of $130 for summer lows, recovering to the mid to upper $140s by the end of the year, he said.

With tight fed beef supplies, aggressive feedlot placements and a 3 percent decline in last year’s calf crop, there’s a high expectation for sustained and even higher prices for calves and feeder cattle this year, he said.

Given the reduction in beef and dairy cow slaughter and heifer retention to rebuild the U.S. herd, year-over year beef production is expected to decline 5 percent in 2014, he said.

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