Rabobank: Beef supply to remain tight, cattle prices high
Lower feed costs, herd rebuilding in the U.S. and strong exports from Brazil and Argentina, will keep global beef supplies tight in 2014, especially in the first half of the year, according to a new report by Rabobank.
The beef supply is expected to rise only slightly globally and decline in key markets like the U.S., and tight supplies will support strong prices.
With continued strength in China’s beef imports and lower-than-expected supply in main export markets, cattle prices have been primarily positive since June. The U.S. and EU markets, however, have not been able to reach their full potential due to consumer pushback on high prices.
In addition, currency exchange rates have impacted global competition, boosting beef exports from Brazil and Argentina, the report states.
Rabobank expects further upside for the global beef market in the first half of 2014, with cattle prices remaining elevated in most regions. Improving climate conditions and moderating feed costs will support herd rebuilding as a global priority.
“The main question in many regions remains where to source sufficient beef supplies. The main demand wildcard will be consumer resistance to high beef prices and the growing availability of competing animal proteins,” the report states.
U.S. feeders and packers will face additional challenges to source enough cattle and beef, especially in light of the new U.S. country of origin labeling legislation passed in November, which will pressure live cattle imports.
In addition, local competition for Mexican feeder cattle will increase and Asia’s competition for Australian beef will likely further tighten the U.S. market, especially for lean beef.
During the fourth quarter of 2013, prices for U.S. fed cattle, feeder cattle, calves, and replacement cows have all reached new all-time record levels. But given the tight supplies, the market seems to have fallen short of its potential due to consumer resistance to current high beef prices, the report states.
Fed cattle prices are trading at $132 per hundredweight to $134. Those prices are likely to level off early in 2014 but are expected to reach new record levels of $135 to $140 toward spring.
Spurred by record-high calf prices and improved weather conditions, the evidence of herd rebuilding in the U.S. is rampant, Rabobank reports. Cow slaughter is down 14 percent year-to-date compared with the same period in 2012, and the number of heifers going through sale barns is record low.
A number of recently announced trade deals, including commitments to reopen closed or impeded markets for beef imports, will also come to bear in the beef market over the coming months and years. The removal of trade barriers will be positive for global beef trade and with lower feed costs should support renewed investment in the global beef industry, the report states.