However, the primary wildcards for kicking off these positive developments are rainfall in Australia, and to a lesser extent the continued drought in the United States and Brazil, pushing more cattle through the system. Indonesian import development during the July Ramadan festivities and Chinese imports towards the high season at the end of 2014 will also provide unknown impacts. The relatively high prices might also result in consumers trading down to pork and poultry.
“The continuing positive market fundamentals will be encouraging for producers’ margins,” said Albert Vernooij, Rabobank Analyst. “However, longer term, the likely lower availability of feeder cattle and high production costs might limit the possible upside. For processors, the current stabilization gives them room to regain margins, but prospects are less positive due to the approaching tight supply in most producing regions.”
Rabobank provided the following regional outlooks:
• EU — EU beef prices should stabilize around the current levels into the summer, with some potential upside later in the year due to the combination of stable supply, continuing strong export demand and relatively high-priced competing proteins.
• US — After recording all-time record price levels during Q1, the US cattle and beef markets have subsided a bit during Q2. Going forward, seasonal price pressure is starting to weigh on the market along with expectations that more fed cattle will soon be making their way to market. Feeder cattle and calf prices continue to push into new all-time record highs in the upper $200 to mid-$210 range.
• Australia — Total Australian cattle slaughter during the first four months of 2014 increased 12 percent year-over-year on the back of dry conditions. As a result, boxed-beef exports have reached record levels throughout the first five months of 2014. Both the short- and medium-term outlook for supplies and prices is heavily dependent on rainfall.
• Brazil — The Brazilian beef market was tested In Q2 2014 by the discovery of a new atypical case of bovine spongiform encephalopathy (BSE) in Mato Grosso plus the growth in production costs. While early reporting of BSE allowed Brazil to keep its ‘insignificant risk’ status, some international embargoes ensued. However, strong exports remain and Rabobank expects prices to recover in Q3 and Q4.
• Canada — Record US price levels have been drawing a lot of Canadian cattle, and extreme winter weather has resulted in very expensive cattle maintenance and feeding conditions. As a result, year-to-date feeder cattle exports to the US are currently running 44 percent above year ago levels, a pace simply not possible to continue — a sharp decline in shipments are expected in 2014 2H.
• Argentina — Poor export performance continues to be the combined result of an uncompetitive exchange rate, a 15 percent export tax and the cumbersome process of obtaining export rights. Rabobank predicts production will increase seasonally, while demand will weaken as a result of the generally recessive economic environment.
• China — In the first four months of 2014, China’s beef imports reached 101,000 tons — an increase of 34 percent year-over-year, but lower compared to the astonishing growth of 380 percent in 2013. Even with this volume, beef imports to China are historically very high.