High beef prices to continue in 2015, predicts Rabobank

New Zealand beef cattle. Photo B+LNZ Ltd.Beef prices are going to continue to be driven by tight supply and continued strong demand in 2015 as the global herd is projected to decline by a further two to three percent year-on-year, says the latest report from Rabobank analysts.

In the bank’s latest Outlook, Rabobank‘s Agri-Commodities Markets Research (ACMR) analysts set out their base case for live cattle. Record price levels are expected, as beef production will most likely post another two to three percent decline in 2015, after experiencing a five percent drop in 2014. They also predict that the rate of carcase weight growth will slow to more conventional levels next year and that there will be lower imports of live cattle and beef from Canada and Mexico into the US.

“Due to the overall tight market conditions, we expect the market to trade towards record levels in the first half of the year, before levelling to a more traditional seasonal pattern for the second half of the year. All of these factors will reduce beef availability and are expected to drive markets to new record price levels.”

The bank’s ACMR analysts expect narrower trading ranges for many commodities in 2015, compared with 2014. On the demand side, growth has slowed in recent years. However, lower price levels should now encourage consumption growth, which will support prices. Key variables to watch in the year ahead, they say,  include US dollar strength, uncertain Chinese demand growth, slowing biofuel demand and oil price weakness.

“All in all, 2015 will be another interesting year for agri-commodities. Macro drivers remain very much in play and price swings from supply and demand shocks are still likely, given that the stocks for most commodities are not yet at levels necessary to provide an adequate buffer,” says Stefan Vogel, global head of Rabobank (ACMR).

He goes on to say that the pace of world economic growth has been disappointing during 2014, particularly in the Eurozone where counter sanctions from Russia have hindered economic recovery. The UK and the US are the bright spots for 2015 but their pace of expansion will be tempered by slow growth elsewhere. Significantly, in 2015 Rabobank expects a downward revision of China’s 7.5 percent a year growth rate.

Farmer selling and planting decisions, global demand and weather-related production risks remain key drivers through 2015.

Assuming normal growing conditions, moderate increases in demand will allow stocks to build for most commodities through 2015.

However, the projected lower price levels through 2015 also provide a great incentive for consumption to exceed the forecast levels. In particular, China’s import demand will continue to be one of the most important variables for many agri-commodity markets.

On the supply side, weather-related production abnormalities will impact agri-commodity prices. The weather in 2014 was somewhat of an anomaly for agri-commodity production, with favourable to ideal growing-season conditions experienced across most regions driving bumper crops across commodities. The only exception was persistent drought conditions across central and southeast Brazil and the east coast of Australia. Despite the higher beginning stocks in 2015, weather threats, including risk of a weak-to-moderate El Niño, could cause prices to diverge from Rabobank’s base case, notes Vogel.

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