AS parts of the world cautiously ease out of lockdown and reassess COVID-19's impact on the beef sector, Rabobank's latest global Beef Quarterly has revised down its global beef production outlook and forecasts slowing beef demand in a declining economy.
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However, the Quarter 2 report said the Australian cattle market was more favourably placed - limited supply and improved seasonal conditions continuing to dominate the local sector and maintain strong cattle prices.
- Beef processing disruptions
Beef supply chains and distribution channels emerged as the major casualties of COVID-19 during March and April, particularly in the United States, where, Mr Gidley-Baird said cattle slaughter dived almost 50 per cent below 2019 levels following beef processing plant closures and slowdowns.
"This limited capacity placed enormous pressure on beef supplies and fed cattle numbers, with prices adjusting accordingly," Mr Gidley-Baird said.
"Beef prices jumped to record levels - the comprehensive cutout reached US $470 carcase weight in early May - and fed cattle prices dropped."
Although US production was improving, with plant capacity, as of mid-May, down only about 10pc, Mr Gidley-Baird said the backlog of cattle was not expected to be cleared until late 2020 or early 2021.
Globally, the spread of COVID-19 continues at pace in many countries - Brazil's processing sector is on high alert - and Mr Gidley-Baird said Australia had been fortunate to avoid any major disruptions to beef processing capacity, its production constrained only by the limited national supply.
- Production outlook
The report's revised-down forecast for 2020 global beef production dropped about 1pc on 2019 levels, with factors beyond COVID-19's disruption affecting the outlook, Mr Gidley-Baird said.
High levels of female slaughter in Brazil and Australia in recent years had reduced breeding herds and Australia's current rebuilding efforts were reducing the number of cattle sent to slaughter.
Australia's east coast cattle slaughter for the year-to-date was down 8pc, while female slaughter was down 13pc - demonstrating producer demand to rebuild herds.
This reduced slaughter had, Mr Gidley-Baird said, reduced exports by 1pc, year-to-date, with disruptions also shifting export markets - reducing numbers into China during February and March, before a recovery in April, and decreasing exports into the US throughout March and April.
In Brazil, Mr Gidley-Baird said, cattle slaughter was believed to have fallen by 9pc in Q1.
However, a reduction in imports from China - down 29pc month-on-month in February - and a decline in domestic consumption had weakened demand, so supply and demand was balanced, maintaining cattle price stability.
"Brazil is experiencing drier conditions, so we expect the supply of animals for slaughter to increase and with domestic consumption continuing to decline, we forecast Brazilian exports to increase, particularly considering the strong devaluation of its currency, down 40pc since the start of the year," Mr Gidley-Baird said.
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 Gidley-Baird said.
- Slowing economic outlook
With Rabobank forecasting a severe downturn in the global economy - with world economic growth contracting 2.6pc in 2020 - Mr Gidley-Baird said there would be repercussions on 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.
"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, or to less expensive beef cuts," Mr Gidley-Baird said.
This trend, he said, was expected to continue throughout a deep recession, with a change in consumption patterns likely to evolve over the balance of 2020.
