Rabobank: Global Beef Prices To Reach Record Levels in 2013
Noting the final quarter of 2012 has been characterized by slightly larger global beef supplies driven by a recovery in herds in Brazil, Argentina and Australia, as well as a lethargic world economy, Rabobank analyst Guilherme Melo says cattle prices are headed higher in 2013 as supplies tighten in North America and Europe.
"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 Southern Hemisphere will outpace the reduction in Europe and the U.S.," says Melo. "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 GDP 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." Melo added.
Additionally, Rabobank says production cuts are likely to come about, driven by negative margins in the wake of severe feed cost increases. "To the extent that this increases poultry and pork prices, it may also benefit the beef industry as the gap between beef and these two meats prices narrows and possibly shifts demand towards beef," it states.
