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Rabobank: Global, local factors driving record prices in beef

DarcyMaulsby-iStock-Thinkstock Cattle at feed bunk
Seasonal conditions that may have once been considered slightly abnormal are now causing major shifts in markets.

Many regions across the globe are experiencing either high cattle prices or high beef prices. While there are some common factors, such as strong demand from China, local drivers are arguably more important in creating these record cattle and beef prices, according to Rabobank’s latest quarterly beef report.

“We believe many of these local factors will correct and cause an adjustment in prices. However, with China’s demand expected to remain firm, we also think the market has seen a fundamental step up,” said Angus Gidley-Baird, senior analyst of Animal Protein at Rabobank.

These record prices – whether cattle or beef – also highlight the pressures of a very tight market, he added. “Given the growth in demand and global trade, pressures created in the current system mean that seasonal conditions that may have once been considered slightly abnormal are now causing major shifts in markets.”

United States: Strong demand-driven beef prices

Renewed competition between foodservice and retail, and strong exports have put the U.S. beef sector squarely in a demand-driven market. In April, beef prices were 18.5% higher at wholesale and 11.5% higher at retail compared to levels seen in 2019.

Fed cattle supplies have averaged 120% of operational packing capacity since April 2020, so despite record strong beef demand, cattle prices have been depressed throughout the pandemic.

According to Rabobank, U.S. retail beef prices could see increases through much of May and even June, and wholesale prices should begin to moderate in the near future. However, cutout prices could remain 5-10% higher than pre-pandemic levels for much of 2021.

Brazil: Seasonally delayed slaughter in a charged export market

The main driver of higher Brazilian cattle prices has been the delay in seasonal rainfall in a Chinese-charged export market, despite softer domestic demand.

Producers chose to delay the sale of cattle until they reached the desired weight, and with approximately 50% to 60% of Brazilian cattle fattened exclusively on pasture this has caused supply to drop below demand. High cattle prices have also encouraged breeders to hold females, further limiting the supply of cattle.

Cattle prices started to soften at the end of April, but reduced supply will limit any further price reductions.

Australia: Low supply-driven prices

Successive years of drought and large livestock liquidation have resulted in the Australian beef cattle herd being at its lowest point in over 30 years. The improved seasonal conditions in 2020 and 2021 created intense competition among producers looking to restock properties and generate value. Young cattle prices jumped almost 30% YOY in February 2020 and rose another 20% in February 2021.

Rabobank believes that current cattle prices will ease as cattle numbers increase and producer demand dissipates. However, as the supply chain overcomes the disruption, and consumers adjust their price expectations, the market will adapt and a new, higher baseline will be established.

China: Strong demand supports beef prices

China’s beef cattle prices increased steadily entering 2021 and were up 9% year over year in April. This represents over a 30% increase compared with the same period in 2018 (pre-ASF era). The key driving force behind this price escalation is the slow growth of domestic production, which has not been able to keep up with the strong growth in consumption. This has led to rising beef imports by China in past years, Rabobank noted.

Although a portion of beef consumption is expected to shift back to pork – when pork production recovers – Rabobank believes beef demand will remain strong, continuing to drive imports from the global market.

Europe: Reduced supply lifts prices

EU beef carcass prices have been firming since Q4 2020, with the average EU beef carcass price currently up 7% on the same period last year. Cow prices are even higher, up 15% year over year, indicating a shortage of slaughter cows.

Prices have moved against the normal declining seasonal trend in the first couple of months of this year, driven by reduced cattle supplies across the EU. Even though an increase in supply is expected in 2H 2021, Rabobank said prices will likely be held up by increased demand as foodservice reopens.

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