The Rabobank's Global Cattle Price Index continued to fall through May, down 6 percent relative to the first quarter of 2013 on the back of a downtrend in cattle prices across the globe, notably in two of the most important export countries, Australia and Brazil. The strengthening United States dollar also contributed to pushing global cattle prices down. However, according to Rabobank, the broader picture for demand indicates consumers are becoming increasingly reluctant to continue paying high prices for beef.
"Industry performance has been mixed across the globe," explained Rabobank analyst Albert Vernooij. "The broader picture for demand still points to tempered consumer appetite to paying high prices for beef as increases in disposable income worldwide appear to be slowing and threats of inflation continue across the globe. The relative value proposition for beef has diminished as beef prices have risen relative to chicken and pork.
"We maintain the view that global beef supplies will remain near 2012 levels with a bias towards a minor increase driven by the Southern Hemisphere," added Vernooij. "This will be led mainly by Brazil, Australia, Argentina, Uruguay and New Zealand — coupled with continued liquidation in U.S. beef supply given the ongoing drought — induced cow herd liquidation. In addition, exports from India have moderated considerably."
- European Union: In the EU, prices continued to increase as a result of a combination of the higher demand for beef — as many players have had to replace horsemeat with "real" beef — and tight supply. This is possibly one of the reasons behind Brazil`s growing exports to the EU this year — up 42 percent to 25.5 thousand tons on the year to May. Prices are expected to remain elevated for the remainder of 2013, but the strong increase experienced since February is expected to level off over the summer.
- United States : The outlook in the U.S. remains gloomy. Feedlots are still being hit by the continuation of strong feed grain prices exacerbated by adverse weather and an insufficient decline in feeder cattle costs. However, packers have been posting improved margins since May. Cash prices have recently traded at a seasonal low of $120 and are expected to maintain a narrow sideways trading band in the short term, before recovering to the mid-$130 level in the third and fourth quarter.
The outlook for the rest of the global beef industry is mixed:
- Latin America : Companies located in South America, particularly in Brazil, should continue benefiting from the herd recovery and brisk exports, which are receiving an additional lift from the depreciation of the Brazilian real. However, rising Brazilian inflation along with declining pork and poultry prices may limit Brazilian players from obtaining higher prices in the domestic market. Even so, the general landscape for processors' margins is still positive.
- Australia & New Zealand: Cattle prices have continued to decline due to increased marketing driven by drought. While this is bad for ranchers and feedlots, the packing segment is benefiting from this environment in the short term.
- China: Although production has been flat, prices have surged. Rabobank expects the value of China's beef market to grow in excess of 10 percent annually over the next three years. High beef prices in China combined with recent signs that the country will open its doors to the global beef market suggest continued growth in imports. This scenario may also trigger interest from Chinese beef players in exporting companies and countries.