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Rabobank report: Beef supply headed for a drop in 2012

Progressive Cattleman Editor David Cooper Published on 11 October 2011
Poky the feeder calf.

Driven largely by drought, the price of feed and changing consumer habits, production of meat products – especially beef – is expected to drop next year, according to a new report by Rabobank International.

The report – “Where’s the Beef?” – forecasts a 5 percent decline in meat and poultry production by mid-2012, with additional reduction heading into the latter part of the year.

Rabobank estimates that the ongoing price adjustments in corn and feed seen over recent years will make production even more volatile. Long-term prices for corn and soybeans could swing between $5 and $12 per bushel. Even with more production overseas, “there is still no margin for error for global crop supplies, due primarily to poor yields in the U.S.” the report reads.

Significant herd liquidation is the other drastic force that will cut into beef supplies, as Southwest herds continue to be culled and liquidated. Rabobank estimates plentiful supplies in early 2012 but will drop sharply in spring and lead to more record high prices in the U.S.

One of the report’s authors, David Holloway, Rabobank vice president for food and agribusiness research, says the supply drop may create a dent in global sales of beef.

“From the standpoint from the available supply going overseas, clearly we’re going to supply the domestic market first,” Holloway said. “But beef supplies in fed cattle and non-fed cattle will mean more aggressive culling of the cows… As we move the through the year, supply will go low for domestic and export, and the price will be higher for foreign buyer on resolute rate, and from exchange rate.”

Beef exports have contributed to the string of high prices in beef production since early 2010. Beef available for export from U.S. producers could drop by double-digit percentages by late 2012.

Holloway said the volatile currency market could also have some impact on trade spending.

“As the European crisis continues to unfold, the world is coming back to the U.S. dollar as a safe haven,” he said. “With that rally, it has the potential to negatively affect exports.”

The drought and culling of herds will also “accelerate the need for more capacity to come out of the packing industry,” the report says. Holloway expressed further that capacity utilization for packers will mean tighter margins for those operations.

“From a packer standpoint, if I were a processor, whether a packer or further processor of non-fed beef, I would be very concerned about next year on the heels of two years of excessive liquidation.

For cattleman those tighter margins will be promising with higher prices for cull cattle. “But in the long term, that’s an issue.”

The report doesn’t offer any fast predictions for recovery. “We do not see herd rebuilding on the near or medium-term horizon,” it says.

Holloway said the impact is more blunt for Southern Plains producers, since Texas and Oklahoma have yet to recover from the severe drought in 2006. Still, the elements are only the beginning of the challenges ahead.

“Droughts are only part of the problem from the long-range structure of industry,” Holloway said. “Older guys are retiring and we haven’t had enough people interested in ranching because of low returns. Drought gets a lot of perspective but that’s only part of the whole situation unfolding on the horizon.” end_mark

STAFF PHOTO: A recent market forecast report by Rabobank International shows beef supplies thinning in the latter part of 2012, with very tighter margins at the packer levels from excessive liquidation.

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