"However, with China’s demand expected to remain firm, we also think the market has seen a fundamental step up."These record prices – whether cattle or beef – also highlight the pressures of a very tight market, the analyst said, adding: “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."
Demand-driven market
Looking to the US, Rabobank notes that renewed competition between foodservice and retail, alongside strong exports, have put the US 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, the report says.According to Rabobank, US 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, cut-out prices could remain 5% to 10% higher than pre-pandemic levels for much of 2021.Rabobank report on Brazilian beef market
Looking next to Brazil, the report notes that 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, adding:"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 and China
Turning next to Australia's fortunes of late, the quarterly publication said that 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% year-on-year in February 2020 and rose another 20% in February 2021, the document notes.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, the bank says.
Looking at China, the report highlighted that China’s beef cattle prices increased steadily entering 2021, and were up 9% year-on-year in April. This represents over a 30% increase compared with the same period in 2018 (pre African swine fever 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, the bank says.Rabobank outlook for beef
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.Finally, putting Europe in the spotlight, RaboResearch noted that 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-on-year, indicating a shortage of slaughter cows, the report says, adding:"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 the second half of 2021, prices will likely be held up by increased demand as foodservice reopens, the report concludes.
