Rabobank: Beef prices to record levels in 2013

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NEW YORK — Global beef prices will reach record levels in 2013, according to research from Rabobank on the global beef industry.

“We expect to see global supply hovering around 2012 levels, with minor ups and downs being determined by the extent to which the increase in the Southern Hemisphere will outpace the reduction in Europe and the U.S.,” said Guilherme Melo, Rabobank analyst. “On the demand side of the equation, the broader picture points to another year of relatively weak consumption on the back of the still sluggish economy, as world G.D.P. is expected to grow only slightly in 2013. 

“The scenario is worse where production is set to decrease, such as North America and Europe, which poses additional pressure for beef companies located in these regions to pass on rising cattle prices to consumers.  Additionally, as such countries rely on grains to feed their animals, they are likely to see a reduction in their competitiveness in the international market.

“Conversely, companies located in South America, particularly in Brazil, should benefit from herd recovery and the acceleration of the economy, which offer processors an opportunity to increase/sustain their margins.   Nonetheless, headwinds for the South American industry will probably blow from the Middle East and North Africa, where companies are likely to face a tougher environment for expanding exports in 2013.  This reflects the uncertainties resulting from political and economic changes after the Arab spring and ongoing internal conflicts, which are contributing to weakening activity.”

The fourth quarter of 2012 has seen higher global supply, driven by the recovery of herds in Brazil, Argentina and Australia. This along with the slow world economy has pressured prices. Prices in local currencies have only risen in the U.S. and New Zealand out of the most important cattle exporting countries. However, the increases may not be enough to offset the spike in costs.

Rabobank’s Global Cattle Price Index dropped 2% in November from third-quarter levels, the result of declines in Brazil, Australia, Argentina and Canada. The index is also beginning December down 11% from where it started in November.

Supporting the market is the strong need for supply discipline in the pork and poultry sectors, according to Rabobank. Production cuts will come, driven by negative margins amidst significant feed cost increases.
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