Market disruptions change trade flows – latest beef outlook
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Market disruptions change trade flows – latest beef outlook

The global beef market is facing considerable market disruption, which has the potential to change global trade flows and even see a shift back to a supply-limited market, a new industry report has found.

In its recently-released Beef Quarterly report, Rabobank says the global beef market has been characterised by three significant changes in recent months: political upheaval in Brazil, proposed bans on slaughter in India and a new trade agreement between the US and China.

As Brazil, the US and India are three of the top five global beef-exporting nations in the world, and China is the world’s largest beef importer, the report says these factors have the “potential to cause material shifts in global trade”.

Report lead-author, Rabobank Australia senior animal proteins analyst Angus Gidley-Baird says while these changes may not have an immediate impact on Australian beef producers, they are likely to have long-term and significant implications on global beef markets.

“In Brazil, the beef sector has been marred by three meat industry scandals, the most recent resulting in the suspension of fresh beef exports to the US,” he says. “This follows the temporary suspension of trade by all major trading partners in March after irregularities in meat inspection. Brazilian beef exports declined by 10 per cent in the first five months of 2017 – compared with the same period last year.

“While it is premature to judge the medium-term impacts, the bans have created some space in global beef markets and it will be interesting to see if the instability in Brazil will continue to have a bearing on their cattle prices and subsequently, production.”

Mr Gidley-Baird says India’s federal government directive to ban the sale of cattle, including buffalo, could also have an enormous impact on global beef trade.

“While it is a month since the announcement was made, there has been no confirmation as to how this directive will be implemented, or when,” he says. “While it is hard to believe that there will be an elimination of India’s export trade, any ban on slaughter would have a profound effect on global protein trade.”

With India’s principal export markets including Vietnam, Malaysia and the Philippines, Mr Gidley-Baird says if India was to withdraw from these markets, it would remove approximately 779,000 tonnes (or 2.7 million head in equivalent live cattle).

The other key market change to affect global beef trade is the new trade agreement between the US and China, Mr Gidley-Baird says.

“After 13 years’ absence, the trade agreement allowing US beef exports into China is now in place,” he says.

“While initial trade volumes are expected to be small and confined to the higher-end of the market, it comes at an opportune time for the US beef industry, with reduced supply out of Australia and New Zealand, and the potential market disruptions in Brazil and India.

“That said, China’s strict trade requirements, including traceability of livestock will limit the number of cattle that the US has available to send to this market, however over time this may change.”

Australia is going to have to keep an eye on this development, Mr Gidley-Baird says, as there is the potential for China to become a large market for the US if there are incentives to encourage more of the US industry to make the changes to meet the trade requirements.

 Outlook for Australia

Mr Gidley-Baird says while global markets will have a bearing on Australian cattle prices, the local supply of cattle – dictated largely by seasonal conditions – will drive prices over the next 12 months.

“There are a number of scenarios that could play out,” he says. “For example, if Australian beef producers get a good spring, this would see restocker-interest in the market remain high, and prices would hold-up accordingly, but come off a bit from their record highs.

“Alternatively, if the season remains dry, particularly in central Queensland, this could see cattle rebuilding efforts put on hold, and prices could ease a bit more.

“Either way, we expect domestic prices to remain attractive, albeit to retract from their record highs, with the Eastern Young Cattle Indicator currently around AUD6.41/kg cwt – 52 per cent higher than the five-year average for this time of year.”

Rabobank Australia & New Zealand Group 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 approximately 8.6 million clients worldwide through a network of more than 1000 offices and branches. Rabobank Australia & New Zealand Group is one of Australasia’s leading agricultural lenders and a significant provider of business and corporate banking and financial services to the region’s food and agribusiness sector. The bank has 94 branches throughout Australia and New Zealand.

Media contacts:

Denise Shaw
Head of Media Relations
Rabobank Australia & New Zealand 
Phone: 02 8115 2744 or 0439 603 525 

Skye Ward
Media Relations Manager
Rabobank Australia
Phone: 02 4855 1111 or 0418 216 103