Overall global beef production is likely to remain constrained and demand is set to weaken in the face of growing inflation across the globe, says a new report from Rabobank's global Food & Agribusiness Research and Advisory team.
The Rabobank Global Cattle price index has recovered slightly from its level in the fourth quarter but remains 8% down year-over-year.
Prices in the U.S. beef complex were a big disappointment in the first quarter, say Rabobank analysts. A strong U.S. dollar, especially relative to the Japanese Yen, plus trade issues with Russia have contributed to a 12% decline in exports.
Retail beef sales have been weak, likely due to increases in the social security tax and rising gasoline prices cutting disposable income.
Winter storms significantly reduced restaurant traffic, further weakening consumer demand.
The combination of low export and domestic demand, high grain prices, and lower-than-anticipated declines in beef slaughter and subsequent beef production resulted in losses to cattle feeders of $100 to $200 a head.
Rabobank says the European horsemeat scandal, as daunting as it first appeared, had hardly any impact on consumer demand. As a result EU beef prices stabilized in the first quarter of 2013, despite the scandal.
Rabobank analyst Albert Vernooij says, "The horsemeat issue was one of mislabeling rather than food safety, which means it has had limited impact on consumer demand. Furthermore, contamination incidents were discovered only in processed products. The result is that, even in the horse-loving UK, consumers remain confident in the quality of fresh beef."
The report says the only lasting challenge created by the scandal will be for the beef industry to meet more stringent tracking and tracing standards. It suggests such tracking standards will be introduced by governments, processors and retail foodservice players.
Vernooij added, "This regulatory response, coupled with lower availability of beef in the coming years, could trigger a significant increase in the number of dedicated supply chains."
The outlook for the rest of the global beef industry is mixed:
Latin America: Companies in Brazil, Uruguay and Paraguay are expected to deliver reasonable margins. Greater cattle availability has made it easier for beef companies to slow the speed at which they are passing along the increase in beef prices. The situation has been further helped buoyant exports.
Australia & New Zealand: Prices have declined on the back of unfavorable weather conditions, which has led to increased throughput at the processor level. Although this is bad news for ranchers and feedlots, the packing segment will continue to profit in this environment.
China: Imports from Australia and New Zealand have soared. The reason is flat production rates; farmers continue to show little enthusiasm for herd expansion. The capital requirements and high disease risk inhibit investment. Therefore the industry is failing to meet domestic demand.
Further, the tightening of the what might be called "black market" business into China will increase the need to import beef through more formal channels.
Rabobank's Food & Agribusiness Research and Advisory team includes more than 80 analysts around the world who provide expert analysis, insight and counsel to Rabobank clients about trends, issues and developments in all sectors of agriculture.