Global beef supplies, which are already record tight, are expected to continue tightening for the remainder of 2014 and into 2015, Rabobank analysts forecast in their quarterly beef report released Oct. 3.
Consumer demand and willingness to pay for that tight supply is being tested like never before but seem to be showing no sign of slowing, helping to maintain firm processor margins, the analysts said.
The prospect of tight supply will underpin a strong competitive landscape for beef. Beef processors in some countries — such as the U.S., Brazil and New Zealand — are welcoming record prices, but processor margins will come under pressure as they compete for beef.
Demand for beef, however, throughout the first half of 2014 and so far in the third quarter has remained strong, a positive situation for processors and exporters, the analysts reported.
Even Russia’s ban on beef imports from the U.S., EU and Australia will likely have little impact on world beef markets but will support an increase in Brazilian beef trade, where strong demand and tight supplies have underpinned record cattle prices.
Heavy slaughter in Australia, with two consecutive years of slaughter greater than 8 million head, will have a profound, long-term effect on the country’s supplies, exports and beef herd.
Here in the U.S., markets continued to operate in uncharted waters in the second quarter of 2014, and volatility continues as cattle prices continue to trade at record levels, Rabobank reported.
In the third quarter, fed cattle prices rallied from a low of $144 per hundredweight to an all-time record high of $164 in July, returning to $152 in August. Early September saw cash prices regaining the majority of the price decline, ranging from $158 to $162.
Placements of cattle into feedlots from April through August were down 536,000 head year over year, imports of feeder cattle from Canada and Mexico are up 40 percent and 13 percent, respectively over year ago levels.
"The bottom line is that the current runaway market in the U.S. has not only cleared the shelves of replacement cattle in the country but has cleared the shelves in all of North America," Rabobank reported.
Indications that supplies are being cleared for the prospect of future opportunities for rebuilding are even more concerning, the analysts commented.
Year over year U.S. beef production is down 5.6 percent, federally inspected slaughter is down 6.4 percent, and the U.S. has aggressively imported beef. Year over year beef imports are up 36 percent from Australia, 3 percent from New Zealand, 11 percent from Canada, and 7 percent from Mexico, the analysts reported.
"The safest assumption with regard to the (U.S.) market outlook is that the extreme volatility will continue for the foreseeable future," they stated.
Supplies of replacement cows and cattle are expected to remain exceptionally tight, feeder cattle will continue to trade firm to higher and the outlook for fed cattle prices remain solid, Rabobank forecasts.