Rabobank Beef Report: The beef market is strong

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Rabobank has released its third quarter outlook for 2022. The global beef market remains strong. However, this could drop depending on consumers’ wallets in the rest of the year.

Most retail beef prices continued their upward trend in the second quarter or remained stable. Although second quarter prices did not rise much above the first quarter, most are between 5% and 11% higher than in the second quarter of 2021. The United Kingdom is a notable exception with a negative growth both month-over-month and year-over-year. -year for the quarter as consumers react to high prices.

Brazil

Retail beef prices in Brazil have seen significant growth of 51% over the past two years, thanks to strong export volumes. While government stimulus measures and the FIFA World Cup could sustain consumer interest in beef over the coming months, in the longer term, rising prices will be a test for the Brazilian consumer and likely lead to the transfer of beef to the export trade.

Globally

The evidence of declining consumer confidence in the face of slowing economies and rising inflation is mounting. In general, beef markets are resilient to changes in economic conditions. However, Rabobank sees a shift within supply channels and pricing levels that tend to favor cheaper options, such as ground beef and quick service restaurants, over cuts and more consumer channels. Dear.

Livestock markets remain favorable, supported either by seasonal conditions, in the case of Australia and Brazil, or by strong demand, in the case of the United States. Cattle prices in some countries have seen declines: Australia, Brazil, Argentina and New Zealand all saw cattle prices fall from the first to the second quarter. This is despite the support provided by the depreciation of several of these countries’ currencies against the US dollar over the same period.

Production volumes in major export areas are expected to remain relatively balanced over the next 12 months, with volume increases in Australia and Brazil offsetting an expected decline in the United States. With continuing drought conditions, livestock liquidation continues in the United States, while production volumes remain constrained in Australia due to limitations in processing capacity.

Will the prices be reduced?

Tight global supplies and strong summer demand have pushed global beef prices to record highs over the past year. However, the fallout from the easing of Covid restrictions, runaway inflation and slowing economic growth are beginning to impact consumer spending habits. Typically, consumption of trimmings, a low-priced beef product, remains firm in slower economic times as consumers gravitate towards this category.

feed lifting

Globally, beef production remained relatively stable. Among the main producing and exporting countries, growth is expected to be more or less balanced until the second quarter of 2023, with expansion in some countries being offset by contraction in others.

Among the world’s major beef exporters, Brazil, Australia and New Zealand export large volumes of trimmings. While production in Brazil and Australia is expected to increase through 2023, Rabobank expects trim export volumes to increase. In the case of Australia, where the increase in herd inventory will generate additional numbers of grass-fed animals and female culls. The supply of lean trimmings from New Zealand has remained stable despite processing constraints caused by labor shortages.

Domestic production of trimmings in the United States increased, driven by the liquidation of the cow herd resulting from the drought and pressure on margins. With a greater volume of domestically produced trimmings available and restricted imported trimmings, the price of imported trimmings remained high above the price of domestic trimmings. Cold storage facilities in the United States are also currently holding record volumes of beef, which Rabobank said has been stockpiled by trim buyers in anticipation of slowing cow slaughter.

The current demand for ornaments is firm

After being sustained in the first half of 2022, the demand for adornments is expected to increase further in the second half of 2022. The main importers of adornments are the United States, China, Japan and South Korea. With these countries facing slower economic conditions in the second half of 2022, Rabobank expected consumer purchasing decisions to favor the consumption of finery. The United States and South Korea face strong inflationary pressures, while China and Japan continue to struggle with slowing economic growth due to Covid.

Rabobank expects trim consumption volumes to remain high and potentially increase in the second half of 2022 as consumers are expected to shift to lower value cuts of beef and cheaper protein. This should support US demand for trimmings from domestic and imported sources, given its high consumption of ground beef.

In the United States, slowing cow liquidity is the key factor driving upside potential for lean trimmings prices over the next six months. However, current forecasts indicate that the lifespan of a La Nina for the second half of 2022 has increased slightly, suggesting no change in season conditions and expecting cow liquidation to continue. continue until the weather improves. Current high domestic production volumes reduce the need for imported products, but if domestic production contracts, higher import volumes would be required.

Australia and New Zealand would be in the best position to benefit from any increase in US imports of skinny trimmings in the second half of 2022. Brazil increased its exports to the US in the first quarter of 2022, filling the US quota available. The over-quota tariff rates make it less attractive for Brazil to continue exporting beef to the United States for the rest of 2022.

Demand for China in the second half is expected to remain firm, despite ongoing COVID restrictions and a weak economy. Brazil is China’s largest beef supplier and is expected to see continued demand for trimmings and other cuts.

Poor pasture conditions sent calves and feeder cattle to feedlots at a faster rate in the first half of 2022. This kept feeder inventories as of July 1 near levels a year ago. is a year old at 13.4 million head, but has reduced non-feedlot supply by 1 million head. . As a result, Rabobank expects a greater shortage of market-ready cattle by winter.

During the second quarter, beef production ranged from stable to higher than last year and this will continue through the end of the year. A 1.5% increase in cattle slaughter in 2022 will more than offset a two-pound drop in carcass weight, resulting in a 1.2% increase in beef production for 2022.

The U.S. beef cattle herd sold off at a record high in early 2022. Beef slaughter rose 12.7% in the first six months of the year and the 4 million head forecast for annual slaughter are nearly 500,000 higher than last year.

Cow herd trend

The beef cow herd in the United States has been liquidating at a record rate since the start of 2022. Beef cow slaughter rose 12.7% in the first six months of the year, and the 4 million head planned for the annual slaughter is almost 500,000 head above the last year.

By the end of July, 54% of the beef cow herd was battling at least moderate levels of drought. In the past 20 years, only 200 and 2012 have seen more July herds in drought-stricken areas. With a La Nina weather pattern predicted for winter, the downward trend in cow numbers, feeder cattle supply and ultimately beef production could reflect the lows of the 2014 cycle d by 2024 or 2025.

Demand remains good, not great.

Increasing pandemic-related disruptions have led to less volatility in supply, demand, and ultimately prices. Recent price trends have shown more resilience during what is typically a seasonal downward trend in late summer. extended over this period in 20 years.

Competition from export markets remains robust, with beef exports averaging 13.3% of production in the second quarter, a new high. In addition, the total value of beef and veal exports averages over $950 million per month. Last year, the highest value of beef and veal exports for a single month reached $938 million.

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