GLOBAL – China has been, and will continue to be, a major driver in beef and dairy market dynamics in the New Year, say agribusiness experts.
Rabobank’s beef and dairy quarterly reports point to a looser dairy market, on the back of strong production, and tight beef supplies.
Both markets will see prices supported, with Chinese demand featuring heavily as beef production is held back by lower feed costs and herd expansion. Dairy production is predicted to be higher, but Rabobank says China will buy surplus.
This makes for an ‘intriguing’ dairy outlook for 2014, according to Rabobank analyst Tim Hunt.
“We expect prices to hold around current highs before easing from mid to late 2014 with continuing supply growth in response to significantly improved margins.
“Any subsequent reduction in pricing will be limited by structural constraints on suppliers, the need to replenish depleted inventories and ongoing demand growth in line with a slow economic recovery,” added Mr Hunt.
China’s importance to the global market has been evident over the last quarter and has ‘soaked up’ milk production upturn.
Mr Hunt added: “Global prices have remained high despite the taps being turned on in key export region.
“China continues to buy exceptionally large volumes of product from the international market to supplement falling local milk supply and this is likely to mop up most, if not all, of the increase in exports arising from key surplus regions in Q4.”
As for beef, values are globally high and at record levels in the US and Canada. Since June, Rabobank’s Global Cattle Price Index lifted six per cent.
This was supported by lower than expected supply in key regions.
Tight supply forecasts mean no let-up in beef prices next year, particularly for the first half of 2014.
Rabobank analyst Albert Vernooij described the expanding Chinese beef demand picture until 2016.
"China's importance and influence on the global beef market is set to continue to increase in 2014," commented Mr Vernooij.
"China's imports of both frozen and chilled beef are expected to grow further, driven by the shortage of beef in the domestic market, reflected in record high retail prices. We believe that the value of the Chinese markets will grow in excess of 10 per cent annually over the next three years."
Rabobank analysts described 2014 as an ‘intriguing period’ for global dairy.
Through the autumn of 2013, Whole Milk Powder values tracked around US$5,000 after the spring spike. Higher prices seen through 2013 are expected to remain until the second quarter 2014, when they will ease.
But, Rabobank insisted this drop will be limited, amid growing Chinese demand and inventory replenishment.
“The rate of price reduction will be limited by structural constraints on suppliers, the need to replenish depleted buyer inventories, and ongoing demand growth in line with a slow economic recovery,” summarised Rabobank.
The production spike relates to all key export regions from August 13 up until October, barring Australia. Here, production was back 4.3 per cent as drought persisted.
Meanwhile Europe enjoyed a better summer, producing 3.6 per cent more milk year on year.
A ‘looser’ market should be created by strong northern hemisphere production following an ‘exceptional’ southern hemisphere season. This, the report states, will meet China’s needs.
Farmgate prices around the world are also strong, being assisted by lower corn and soybean prices. The report suggested 10 to 40 per cent decreases will buoy intensive feeders.
Going forward, South America is tipped to crank out milk. This has already been seen in Brazil, which coincided with record prices, up 27 per cent, the report added. This was despite consumption ‘spluttering’.
The report forcast Argentina is set to benefit from improved feed costs, although economic uncertainty means dairy investment has been lacking. Overall, exports will falter as weak signals are passed through to producers.
Generally, live cattle prices have been 2-5 per cent higher in the major beef nations, particularly in Argentina, although high inflation and weakening currency has meant packers have struggled.
Industry sale data collated by Rabobank revealed Argentinian cattle have been selling at 11 per cent higher through this autumn than last.
Prices have also been at record highs in the US and Canada as weather patterns have normalised and herd expansion plans begin.
Calf prices have also been at record highs, showing the industry’s intention and heifer and cow slaughter has been down. Heifer sale receipts were four per cent lower than the five year feed sale average, the report revealed.
The report outlined new country of origin labelling laws and the implications of Mexico and Canada.
Outlining processor responses to the news, the report said: “This legislation has already led to Tyson’s announcement that it will no longer accept cattle raised and fed in Canada, which immediately pushed up supply of fed cattle offering in Canada this quarter.
The report added that Mexico would see improved margins and increasing exports stir up local competition.
Other legislation, in the shape of recently announced trade deals, was highlighted as a positive factor which could result in global beef industry investment.
The Trans-Pacific Partnership Agreement promises to eliminate tariffs and barriers next year between New Zealand, the US, Australia and Canada, one third of all beef production.
Europe could also benefit from trade developments, in the shape of deregulation around bovine spongiform encephalopathy (BSE).
Canada, China, Japan and the US have relaxed restriction, which Rabobank has said could benefit EU beef and veal.
In addition, Canada’s grant of duty free import quota for 50,000 tonnes of EU beef is on the horizon, expected for 2015.
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