Aussie cattle market favourably placed despite global concerns
RABOBANK’S latest Beef Quarterly has revised down its global beef production outlook, but indicates the future is much brighter for the Australian cattle market.
As parts of the world cautiously ease out of lockdown and reassess COVID-19’s impact on the beef sector, Rabobank’s global forecast shows slowing beef demand in a declining economy.
However, the Q2 report said the Australian cattle market was more favourably placed, with limited supply and improved seasonal conditions continuing to dominate the local sector and maintain strong cattle prices.
Angus Gidley-Baird is a senior analyst for Rabobank which is a global financial services provider for the agribusiness sector.
He said beef supply chains and distribution channels emerged the major casualties of COVID-19 during March and April particularly in the US, where cattle slaughter dived almost 50 per cent below 2019 levels following beef processing plant closures and slowdowns.
“This limited capacity placed enormous pressure on beef supplies and fed cattle numbers, with prices adjusting accordingly,” Mr Gidley-Baird said.
“Beef prices jumped to record levels – the comprehensive cutout reached USD 470/cwt in early May - and fed cattle prices dropped.”
Although US production is now improving, with plant capacity as of mid-May down only about 10 per cent, Mr Gidley-Baird said the backlog of cattle may not be cleared until late 2020/early 2021.
“Globally, the spread of COVID-19 continues at pace in a number of countries – Brazil’s processing sector is currently on high alert.”
Mr Gidley-Baird said Australia had been fortunate to avoid any major disruptions to beef processing capacity, with its production constrained only by the limited national supply.
He said the report’s revised-down forecast for 2020 global beef production dropped about one per cent on 2019 levels, with a number of factors beyond COVID-19’s disruption affecting the outlook.
High levels of female slaughter in Brazil and Australia in recent years had reduced breeding herds, with Australia’s current rebuilding efforts reducing the number of cattle sent to slaughter.
Australia’s east coast cattle slaughter for the year to date was down eight per cent, while female slaughter was down 13 per cent, demonstrating producer demand to rebuild herds.
“This reduced slaughter has reduced exports by one per cent, year to date, with disruptions also shifting export markets, reducing numbers into China during February and March, before a recovery in April, and decreasing exports into the US throughout March and April,” Mr Gidley-Baird said.
In Brazil, he said, cattle slaughter was believed to have fallen by nine per cent in Q1.
However, a reduction in imports from China – down 29 per cent month on month in February – and a decline in domestic consumption, had weakened demand and maintained cattle price stability.
“Brazil is currently experiencing drier conditions, so we expect the supply of animals for slaughter to increase,” Mr Gidley-Baird said.
“And with domestic consumption continuing to decline, we forecast Brazilian exports to increase, particularly considering the strong devaluation of its currency, down 40 per cent since the start of the year.”
Mr Gidley-Baird said processing slowdowns in the US, plus Argentine tax regime changes and a softening of demand in its export markets, also contributed to the lower production estimate.