Global Research Report Analyzes Beef and Cattle Supply, Demand
Second quarter holds downside price risk for cattle and beef; recovery expected midyear.
Analysts with the Rabobank International Food & Agribusiness Research and Advisory (FAR) group are expecting to see a downside price risk for cattle and beef, due in large part to larger global supplies led by Brazil in the second quarter (Q2) of 2012. Rabobank's Quarterly Beef Outlook assesses both the U.S. and global cattle and beef markets, giving long-term projections for both.
In the United States, fed-cattle prices traded at all-time record levels during the first quarter, with the average year-to-date price of $1.26 per pound (lb.) and a peak price of $1.30 per lb. in the first week of March.
Demand for U.S. beef took a hit following the media and public concern over lean, finely textured beef (LFTB). However, LFTB represents only about 2% of the U.S. beef market, and the damage done by the negative LFTB publicity should abate by midyear. The ultimate effect on the market depends on how much and when any of the LFTB supply returns to the human food chain.
"Prices for U.S. fed cattle should remain near $1.15 through midsummer, before posting a sharp price recovery for the second half of the year," said David Nelson, global strategist with FAR. "Restricted supplies and seasonal considerations should drive the price recovery."
Cattle-on-feed numbers remain strong, with a 1%-3% increase over 2011. During this time, federally inspected slaughter ran 6% below 2011 levels and 5% below the five-year average.
"The live-steer-price-to-cutout-value ratio has been unsustainably high, confirming poor packer margins," Nelson said. "Packers have cut processing rates in an effort to support cutout values and exceptionally poor margins, driving the reduction in slaughter."
Steer carcass weights have been abnormally high, holding at 20-21 lb. over the same period in 2011 and the five-year average. Despite the increase in steer carcass weights, U.S. beef production was down 3.4% from last year as of mid-April.
Globally, once the larger supply of Brazilian cattle plays itself out in the second quarter, cattle prices should recover. Following that short-term supply bulge, Rabobank expects most beef-producing countries to go through liquidation, a retention cycle or weather-related problems.
Still, rising prices may be limited by weakness in economic growth in developing countries, shifting some demand to cheaper sources of protein. However, the longer-term price outlook for cattle looks promising.
"Global meat protein, especially beef supplies, will continue to hamper profit and herd growth in important emerging markets," Nelson said. "This will support prices, while raising volume and cost risks to processors and price risks to buyers."
