Rabobank: China’s reopening provides opportunities for beef
Retail and farmgate beef prices cracked records in many regions in 2022, driven by elevated consumer demand and tight beef supplies. Brazil also achieved record export volumes and returns in 2022, thanks to growing Chinese demand.
The softening in consumer sentiment and subsequent weaker beef pricing in late 2022 has flowed through into early 2023. While beef supply settings are favorable for beef prices, consumer confidence will continue to be tested and have a bearing on beef returns. China will remain a focal point, as the world watches to see how quickly the giant emerges from Covid lockdowns amid a slowing economic environment. It is anticipated that Chinese demand for beef will pick up in 2H 2023, boosting global beef prices.
The US will be the other focal point. After setting records in both volume and value terms for beef exports in 2022, numbers are starting to show the contraction in production. Beef cow inventory has dropped to the lowest point since 1962 and feedyard inventories show a decline. The expected drop in US beef production will cause a redistribution of global beef supplies and an overall tightening in the market.
Total beef production is forecast to be steady in Q1, with a 5% lift in Australian and 2% increase in Brazilian production, almost enough to offset declines in the US, EU-27, and New Zealand. The supply picture through 2023 is forecast to remain tight as US production dips.
While other countries lifted most restrictions from the pandemic by 2022, China continued to experience disruptions from the virus in addition to a slowing economy. Rabobank predicts Chinese demand for beef will pick up in the second half of the year, which will boost global beef prices.
With new technology like portable ovens and cookers, there has been a rise in retail beef sales, where the main channel for beef has traditionally been foodservice. This trend and the rapidly growing pre-prepared dish market has Rabobank expecting increased beef consumption in China.
In 2022, China upped its beef imports by 15% to 2.68 million tonnes. It became a top-three US beef export destination. However, with the decline in US supply, growth in exports will likely slow, leaving room for more trade from Australia.
After increased slaughter volumes in late November and early December, Australia continued to show the same high levels in early February, suggesting that increased volumes are becoming available. According to Rabobank’s report, slaughter volumes could increase by 10% in 2023.
Brazil is China’s largest import destination, and Rabobank expects additional trade opportunities for the South American country in the coming year. Brazil reopened the Mozarlándia plant, which is the largest export plant supplying China. Eight other plants await approval to export to China, while 11 plants await approval to export to Indonesia. Despite Brazil’s resources and trade readiness, a case of bonie spongiform encephalopathy (BSE) could affect trade flow. China and the United States both temporarily suspended trade of Brazilian beef due to the BSE flareup.
Europe’s beef production was down in 2022 by about 1.3% compared to the previous year. As a result, its exports declined by 19% and are will likely remain sluggish in 2023, Rabobank said.
Mexico, though, is expected to amplify production in the coming year. The past three years, it has been building a steady increase in cow herd size, with a 50,000 head per year rate. Rabobank predicts a 2% lift in beef volumes to near 2.2 million tonnes. While production is up, beef prices are down. The report noted a drop of 8% over the last two months compared to last year.
Tropical Cyclone Gabrielle hit New Zealand in mid-February, affecting the country’s agriculture, damaging farms and the country’s infrastructure, and taking a hit to the stock market. While the North Island and upper South Island were greatly impacted, the western and southern portion of the South Island remain dry. Rabobank said the substantial bank across the country will help support cattle prices. Overall, in 2022, New Zealand’s beef production declined by 4% to 26,774 tonnes.
Cattle prices across most regions continued their downward trend. The notable exception being the US, where more limited supplies are providing price support.
After a noteworthy year of record-breaking highs in beef exports in 2022, a new report from Rabobank suggests that 2023 will entail softened consumer sentiment and weaker beef prices.
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