Global beef production and demand expected to fall in 2020
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Global beef production and demand expected to fall in 2020 – Rabobank beef quarterly

With Covid-19 and the associated measures to contain it creating turmoil in global beef markets, Rabobank’s latest global Beef Quarterly has revised down its global beef production outlook, and forecasts slowing beef demand in a declining economy.

Report co-author RaboResearch animal proteins analyst Blake Holgate said Covid-19 continued to cause major disruption to the global beef industry and the fortunes of the sector in coming months would hinge largely on the effectiveness of virus containment strategies, consumer reactions and the severity of the economic fallout.

“While we do not expect large changes on the cattle-production side of the global beef industry, ongoing management of the virus and the resulting economic contraction will play out during 2020 and will heavily influence processing and demand parts of the industry across different regions,” he said.

Beef processing disruptions

The report says beef supply chains and distribution channels emerged as the major casualties of Covid-19 during March and April, particularly in the US.

“At one point US cattle slaughter fell by almost 50 per cent below 2019 levels following beef processing plant closures and slowdowns.” Mr Holgate said.

“US production is now improving, with plant capacity, as of mid-May, down only about 10 per cent, however, the backlog of cattle is not expected to be cleared until late 2020 or early 2021.”

Mr Holgate said beef production was also being impacted in several other beef producing regions across the globe.

Blake Holgate, RaboResearch Protein and Sustainability Analyst

Blake Holgate, RaboResearch Protein and Sustainability Analyst

“Here in New Zealand, social distancing measures implemented in processing plants resulted in an initial drop in processing capacity of about 30 per cent when the country first went into lockdown in late March. Efficiency gains since late March have improved throughput and plant capacity is now back to near normal levels.” he said.

“Other regions to see significant falls in beef processing capacity include Canada, Indonesia and India, while industry particiapants will be keeping close tabs on processing capacity in Brazil with the sector currently on high-alert due to a surge in Covid-19 cases.”

Production outlook

The report forecasts global beef production to drop by about one per cent on 2019 levels, with Covid-19 and a number of factors affecting the outlook.

High levels of female slaughter in Australia and Brazil in recent years had reduced breeding herds.

“Favourable seasonal conditions across the Tasman have allowed herd rebuilding to commence, reducing the number of cattle sent to slaughter,” Mr Holgate said

“In Brazil, weak domestic demand, uncertain export opportunities and good seasonal conditions are expected to see more cattle finished on pasture.”

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, Mr Holgate said.

Demand outlook

While some countries, such as those in South America, are just starting to feel the impacts of Covid-19, Mr Holgate said other economies are now beginning to relax lockdown measures that have stifled beef demand.

“In China, Australia, the US, Europe and here in New Zealand, foodservice and public gatherings are now being permitted in limited forms. And while this is a boost for the beef industry, a full recovery of this consumption channel will be contingent on social distancing rules and consumer confidence,” he said.

“In China, where they are further advanced in their Covid-19 recovery, we see that demand recovery is weaker than originally expected, and, rather than a surge, there has been a more cautious approach from consumers returning to normal.”

In the medium term, Mr Holgate said, the anticipated severe downturn in the global economy would have repercussions for beef demand.

“As a perishable product, there is a consistent relationship between production and consumption – whatever beef is produced will be consumed relatively quickly,” he said. “And the question then becomes ‘at what price will we consume the given quantity?’.”

He said past economic downturns suggest beef demand declined – with consumption during the global financial crisis and past European downturns stimulated through discounting.

“With economic stress there is also the risk that consumers shift to cheaper animal protein, such as pork and poultry,” Mr Holgate said.

“Many consumers will also shift to less expensive beef. We expect demand for cheaper beef products to increase, while demand for middle meats softens in step with consumers’ financial situation. This dynamic is likely to support demand for manufacturing beef which makes up a significant proportion of New Zealand’s overall beef exports.”

New Zealand

Mr Holgate said lower processing capacity in New Zealand had resulted in recent easing of New Zealand cattle prices.

“The physical distancing rules in effect throughout the lockdown period led to increased processing costs and, with cattle supplies far outweighing available space, cattle prices declined through April. In mid-May, cattle prices were down between six per cent and 15 per cent on last year, depending on the class of cattle and region in which producers are located.” he said.

“Kill space will remain restricted over at least the next month as processors continue to work through the seasonal peak in New Zealand’s cow kill, as well as the backlog created during April.”

Despite lower processing capacity, Mr Holgate said New Zealand’s total beef exports were down by only two per cent year-on-year for the February-April period, although there was a significant shift in the composition of export markets over that period.

“New Zealand exporters effectively managed the significant market and trade disruption caused by Covid-19,” he said.

“While Chinese demand weakened, product was redirected into those markets where demand remained strong, particularly the US. With the assistance of a weakening New Zealand dollar, this saw average beef export returns in NZ dollar terms increase by 10 per cent year-on-year for the February-April period.”

 

Rabobank New Zealand is a part of the global Rabobank Group, the world’s leading specialist in food and agribusiness banking. Rabobank has nearly 120 years’ experience providing customised banking and finance solutions to businesses involved in all aspects of food and agribusiness. Rabobank is structured as a cooperative and operates in 40 countries, servicing the needs of about 8.6 million clients worldwide through a network of close to 1000 offices and branches. Rabobank New Zealand is one of the country's leading agricultural lenders and a significant provider of business and corporate banking and financial services to the New Zealand food and agribusiness sector. The bank has 32 branches throughout New Zealand.

 

Media contacts:

David Johnston
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Rabobank New Zealand
Phone: 04 819 2711 or 027 477 8153
Email: david.johnston@rabobank.com


Denise Shaw
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Rabobank Australia & New Zealand 
Phone: +612 8115 2744 or +61 2 439 603 525 
Email: denise.shaw@rabobank.com

 

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