Rabobank analyzes global beef tradeRabobank analyzes global beef trade
February 8, 2016
BEEF production patterns are changing around the world, and the industry is seeing the role new trade dynamics, policy and consumer-driven preferences will play in shaping future success.
According to a new report from the Rabobank Food & Agribusiness Research & Advisory group, U.S. beef producers are seeing the very nature of beef trade evolving as other countries begin producing beef under favorable export agreements, the U.S. dollar is gaining in value and domestic markets are making demands producers haven't experienced before.
"In the U.S., we are hearing from producers that they are wrestling with strategic questions centered around whether creating a safe and nutritious product will be enough to sustain a profitable market for quality U.S. beef," report co-author and Rabobank protein analyst Don Close said.
The report explores imports and exports of global beef-producing countries and the development of China and Southeast Asia as major consumers.
"Over the past few years, China has become a major player in the global beef trade," Rabobank analyst Matt Costello said. "While per capita consumption for beef is low compared to more traditional beef markets, projections suggest greater China will become the world's largest beef importer in the coming few years."
This likely will occur even as China's slowing economy is raising concerns across the globe. However, Close said it is just that: a slowdown. "We are not talking that rollover from growth to contraction. It's still growing — just at a slower pace," Close said of China's economy.
While there is reason for concern, he said the current state of China shouldn't be the only cause.
Between the China situation, the Middle East situation and the global oil situation, there is a lot going on right now that's outside the realm of market price discovery, Close said.
Against this backdrop, the U.S. beef industry faces an increasingly competitive global beef market. While the U.S. is expected to remain the global standard for quality and supply stability, the domestic industry has the opportunity to determine future investment through a robust discussion about competitive strategy.
The report — "AgFocus: Global Beef Production Becoming More Competitive & More Complex — How Should the U.S. Industry Respond?" — outlines three of Rabobank's suggestions for keeping U.S. products competitive.
"We feel a focus on enhancing U.S. export opportunities, producing beef that meets emerging consumer preferences and implementing programs such as a voluntary, industry-driven cattle and beef traceability program are important steps to strengthen the U.S. position in the market," Close said.
"Looking closely at trade, it's our point of view that if TPP (the Trans-Pacific Partnership) is not passed, it puts U.S. exports at a significant disadvantage in a global marketplace since there is an anticipated increase in exports from South American countries that have trade agreements separate from TPP," he added.
According to the report, new trade relationships, volatile weather conditions, expansion of global feed grain production and currency fluctuations are changing the competitiveness of global beef-producing countries. Additionally, pork and poultry continue to vie with beef for their "share of the plate."
Rabobank's view is that, over the next three years, global beef production could expand materially in the Americas in response to the powerful combination of price signals, newly signed trade agreements, low feed costs and — in some markets — the transition to intensive beef production and domestic policy reforms.
Whether this translates into a global beef supply glut depends on production in other regions, notably in the Eastern Hemisphere, where production in Australia and New Zealand is expected to contract over the coming years; in India, where politics are an important determinant of future production, and in China, where slowing economic growth may place downward pressure on beef production and imports.
Costello said a rebound in the Americas is being largely offset by much lower production in Australia and New Zealand.
"Moving forward, we're likely to see a significant contraction in beef availability," Costello said.
Currently, Australia exports 70% of what it produces, and Australia's success in negotiating free trade agreements has helped the country maintain robust global trade. However, the Australian cattle herd has decreased from around 29.6 million head in 2013 to about 26 million in 2016. By 2017, it is projected to shrink even further to around 25.7 million head — the lowest level since 1994.
The reduced slaughter cattle inventory will lead to a drop in cattle slaughter, which the Rabobank report says will have consequences for Australia's ability to meet demand from both the boxed beef and live cattle export markets, as well as domestic demand.
However, as the global market share of Australia and New Zealand decreases, other countries have an opportunity to gain. Brazil, with 200 million head of cattle in inventory, will likely be one of those countries as it is implementing more crop rotation and more double-crop production of corn, Close said. In fact, he pointed out that South America's supply of feed grains is building at a rate equal to or faster than the U.S.
"You take that large supply of cattle and the large supply of feed grains, and someone's going to come up with the idea that they can feed them," Close said.
While the country, as a whole, has challenges, he said the bright spot for Brazil is that agriculture is the leading contributor to its gross domestic product.
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