Rabobank Australia, Media Release, 21 November 2022
The US, the world’s second-largest beef importer after China, will look to global markets for more beef over the next three years as its domestic production declines, Rabobank said in a newly published report.
And – while Australia is among the main global beef exporters that could help fill the gap – its own supply constraints mean it will struggle to find additional export volumes.
Indeed, the report says, with production constraints in many of the world’s beef producing countries, international markets will struggle to fill the void left by the US contraction, potentially leading to higher global beef prices and a reallocation of trade volumes. The impact of slowing economic conditions and declining consumer confidence worldwide may also moderate global demand, he notes.
In its Q4 Global Beef Quarterly report, the specialist agribusiness bank said the reduction in cattle numbers in the US is “nothing new” – with more declines than growth in recent years – so far it hasn’t affected commodity numbers. domestically produced beef reaches US consumers.
But that is expected to change soon, with the bank forecasting a 3 percent decline in U.S. beef production in 2023 and a two to five percent annual decline through 2026.
“On average, this is a loss of 400,000 to 500,000 metric tons of beef annually from the U.S. production system,” the report states.
Behind the decline, says Angus Gidley-Baird, senior animal protein analyst at Rabobank, the report’s lead author, is a natural cyclical “liquidation” of cow numbers after the US herd peaked in 2019, compounded by the effects of recent drought conditions. and high feed costs.
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Mr Gidley-Baird said previous periods of decline in US beef production meant the country’s retailers and restaurants would look to the global market to fill the gap, and US consumers would outpace the rest of the world in getting their fill of beef.
The question is whether beef-exporting nations will fill the gap, he said.
“While neighbors Mexico and Canada — the two largest suppliers of beef to the U.S. — are likely to loosen up a bit, Canada is going through a phase-out of its cattle herd, likely limiting what it can supply,” he said.
“Australia and New Zealand, the third and fourth largest suppliers to the US, are the logical next choices. But Australia’s recovery from its cattle phase-out is looming with some questions about whether it will be available to produce the same volumes of cattle it did in the past.
Mr Gidley-Baird said beef production in New Zealand was also expected to be limited – forecast to fall by four per cent between 2023 and 2025 – although Europe, which is not a major beef supplier to the US, would continue to see a structural decline. in production during that period.
“This leaves South America, which has the volume but lacks the trade opportunity needed to fill the large gap in US production,” he said.
“Brazilian production is forecast to increase in the coming years, but we expect production in Argentina to decline later in the summer.” Together, these two major South American exporters will not increase production enough to offset the decline in the United States, even if trade arrangements are changed to increase the volumes that can be exported from South America.
The net result, the report said, is that Rabobank expects that the decline in beef production in the United States will not be offset by production growth in major exporting countries.
“And this is without taking into account any other increase in global beef demand over the same period,” the bank said.
Global market pressure
Mr Gidley-Baird said given supply pressures in many markets, this meant global beef importers – and consumers – would have to pay more to compete for available supply.
“And this could create a strong rise in prices and a redistribution of trading volume in the coming years,” he said.
The global beef market currently remains robust, the Rabobank Beef Quarterly report said, with cattle prices generally favorable, largely supported by positive seasonal conditions and sustained consumer demand.
“But given the slowing economic backdrop – with high inflation and declining consumer confidence – demand could still soften,” Mr Gidley-Baird said.
“The central question is whether beef markets will be shaped by more demand- or supply-side pressures as we head into 2023.”
Favorable seasonal conditions for Australia continue to support producer demand and, in turn, cattle prices, despite softening at the retail point of the supply chain, the report said.
Mr Gidley-Baird said domestic beef prices were expected “to be lower in the new year as we approach the end of the year, as cattle volumes increase and summer grazing growth begins to dry”.
Labor constraints and tight margins are driving a decline in slaughter numbers in the Australian beef market, according to the report.
“Through September and October, volumes fell below 2021 volumes as labor issues persisted, but recently weaker margins have caused some mills to cut volumes,” he said. Mr Gidley-Baird said that while the bank believed the Australian cattle herd was growing, it was “not doing so at the rates we’ve seen in the past”.
“We believe producers are trading cattle rather than building breeding numbers by taking advantage of good forage availability and high cattle prices,” he said.
“As a result, despite more than two and a half years of good seasonal conditions, we haven’t seen cattle prices fall and slaughter numbers rise, particularly in the Southeast.”
However, Mr Gidley-Baird said Rabobank believed cattle numbers would increase by 2023.
“The challenge now is that given rising costs and softer consumer markets, cattle prices will have to fall even lower to create viable processor margins,” he said.