Beef markets to feel the bite of recession

Falling global demand for beef as a result of the recession, and the strengthening of the US dollar will combine to put downward pressure on world prices in 2009, according to international meat consultants Gira.

For a video on beef prospects, click here
For our view on beef prospects, see Phil Clarke’s Business Blog

But this will be partially offset by a continued contraction in the beef herd in most of the major suppliers to the world market, so that any market downturn is likely to be limited and temporary.

Gira’s UK representative Richard Brown says the international market really started to turn last September, as the scale of the world financial crisis became apparent and some contracts for beef were cancelled.

He reckons that 2009 will see a serious short-term drop in global demand for beef, led by significant down-trading to cheaper cuts, combined with a slight fall in total consumption.

Demand has already fallen in 2008, and further drops are predicted this year in North Africa, the Middle East, Russia and Argentina.

“But beef producers are extremely fortunate that this coincides with a short-term decline in production in most regions,” says Mr Brown. “The fall in supply will reduce the downward price pressure caused by lower, short-term demand.”

Brazil in particular is expected to see a continuing slump in output, as significant price increases over the past three years have encouraged producers to engage in herd rebuilding, so reducing the availability of slaughter cattle.

“The supply of slaughter cattle is likely to stay constrained for the next year or two, and exports will also decline,” says Mr Brown. Production is also expected to fall in Argentina and Uruguay due to herd rebuilding.

Another major international player is Australia, which ships significant quantities to Japan and South Korea. But cattle numbers have declined over the last couple of years due to drought, and this year supplies are expected to fall back again, as Australian farmers attempt herd rebuilding. The impact of lower slaughter numbers, will however be slightly offset by higher carcass weights as the country’s feedlots are replenished, encouraged by falling feed costs and a weakening Australian dollar.

Mr Brown also points to problems in the North American market. “The US beef herd traditionally works on a 10-year cycle, but it is currently about two-to-three years late in recovering,” he says. Like Australia, this has not happened due to some pasture problems and awful margins for the feedlots.

As a result, the USA has become increasingly dependent on beef coming in from Canada, which last year supplied over 850,000t. But foreign exchange difficulties and BSE restrictions have interrupted this trade in recent years and Canadian production has slumped.

Overall, Gira estimates that total beef and veal supply will shrink by about 400,000t globally in 2009, with a commensurate (3%) drop in trade (see red arrows on chart).

gira beef map thumb 

But this tighter picture will not be enough to prevent a fall in prices, as the global recession bites.

Gira predicts that beef producer returns will fall in all countries when expressed in US dollar, the main currency of the trade. But, as the US dollar strengthens, so the price falls become more muted when cattle values are converted back into local currency. For example, in the EU, producer beef prices are forecast to fall from about €3250/t to €3000/t.

For a video on beef prospects, click here
For our view on beef prospects, see Phil Clarke’s Business Blog

UK producers will also continue to feel the benefit of a weaker sterling lifting prices of imported beef and making exports more competitive.

And while the beef market overall is looking slightly weaker for 2009, Mr Brown points to the drop in feed costs which have now filtered through and which should enable most producers to stay in profit.

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