Drought conditions lingering in Australia cattle regions has kept slaughter and export volumes high, which offsets the tight global beef supplies experienced last year. 

However, herd liquidation in Australia cannot continue at the rapid pace seen over the past two years without planned short-term expansion, explained the Rabobank Food & Agribusiness Research and Advisory (FAR) group in its quarterly beef report.

“Global beef supply continues to remain tight in Q1-2015, although Australian exports remain high as drought continues,” said Angus Gidley-Baird, Rabobank animal protein analyst.  “Continued liquidation of the cattle herd and possible improved seasons will lead to a reduction in Australia’s beef production through 2015.”

While global beef supplies remain restricted, higher prices in 2014 have been supported by strong demand in China and the U.S. The ability for beef prices to continue to climb will be highly dependent on other animal proteins and global economic performance, noted Rabobank.

According to the report, the U.S. dollar remains strong against the currencies of major beef trading nations, assisting those countries exporting to the U.S. such as Canada, Mexico, Australia and New Zealand. In contrast, the Russian rouble has turned a corner and improved against the U.S. dollar. As a result, the improved exchange rate should support an increase in Russian beef imports.

Regional outlooks

U.S.: The new calendar year has brought very volatile cattle prices for U.S. beef producers.  The unstable price environment is result of exiting investors in the cattle futures fearing aggressive competition from pork and chicken along with the notion that cattle prices peaked in 2014.  Further, the severe winter weather across heavily populated states and the west port gridlock negatively impacted the cattle markets in the first quarter.

Australia: Although some rainfall fell in drought-affected areas late 2014, Australian slaughter numbers stay in record territory and so did cattle prices. Nevertheless, the seasonal break for major cattle producing areas did not occur in Q1-2015, indicating that rebuilding of herds is not going to happen anytime soon. Meat and Livestock Australia is forecasting slaughter for 2015 to be down 15% compared to last year.

Brazil: Live cattle prices have stabilized in Brazil.  For this year, the international demand for Brazilian beef is anticipated to grow as the expected devaluation of the Brazilian real to persist strengthening the countries’ export competiveness. Still, Russia will be a key to the growth in Brazilian exports.

Canada: Aggressive shipments of both feeders and cows to the U.S. have supported robust prices in the first quarter for Canada. However, the 42% increase year-over-year feeder shipments to U.S. in 2014 have led to tight supplies in 2015.

China:  Entering into 2015, retail beef prices have steadied in China.  A combination of a slowing economy, an anti-corruption campaign and lower pork and chicken prices has weakened beef demand, stated Rabobank. 

EU:  Continuing from a positive second half in 2014, EU beef market started the new year with elevated beef prices due to strong beef export demand.  A 2.2% year-over-year increase in EU beef production was seen in 2014 and the forecast for 2015 is up another 2%.  The rapid depreciation of the Euro will support strong export demand for the first half of 2015.

Mexico:  Cattle availability in Mexico remains scarce and the beef cow inventory is most likely to remain flat this year.   According to Rabobank, cattle exports for Mexico are expected to be robust in 2015, driven by strong U.S. dollar and the strong demand in the U.S.

New Zealand:  Weak dairy prices and hot, dry conditions has triggered higher slaughter rates and soft cattle prices for New Zealand.  The demand in the U.S. has boosted exports with January shipments overall increasing 15% compared to January 2014. Shipments to the U.S. for the first month grew 45% from a year ago. Firm cattle prices are expected in Q2-2015 as result of strong exports.