How can the U.S. respond to increasingly competitive and complex global beef production?
Global beef production is responding to sustained high prices and robust global demand, where unaffected by weather challenges. For the U.S., 2015 highlighted how swiftly supply can outpace demand. Against a challenging backdrop, the U.S. beef industry faces an increasingly competitive global beef market.
New trade relationships, volatile weather conditions, expansion of global feed grain production, and currency fluctuations are changing the competitiveness of global beef-producing countries. Simultaneously, pork and poultry continue to fight with beef for ‘share of plate’.
The U.S. is the global standard for quality and supply stability
It is important to note that, in the past, all similar market declines were driven by an outside influence. However, we argue that the current break was primarily driven by complications in the internal market. While that fact does not make the short-term economics any easier, it does provide market participants the ability to largely correct the market from within, which will ultimately be a huge advantage.
The key drivers of the current market break were record domestic prices that curbed short-term consumer demand and an incredibly strong US dollar that encouraged beef imports while discouraging US beef exports. This combined with unprecedented conditions of record-high fed cattle prices, relatively low feed grain prices and a horrible feeder/fat swap, encouraged producers to feed existing inventory longer in an attempt to lower break-even prices of cattle on feed and defer purchase of replacement cattle with an equal or worse break-even calculation. All of this led to excess beef in the market at a time when the market had expected supplies to remain scarce as the cow herd rebuilds.
Given the list of drivers that caused the market complications, a closer look at each point could give clues as to what could take place for the remainder of the year and the first half of 2016.
Creating opportunities in three steps
Rabobank sees three steps the U.S. beef industry could take to create opportunities. These would help U.S. beef to remain the global standard for quality and supply stability, and to ensure discussion and investment takes place to develop and secure a future competitive strategy.
- Embracing trade opportunities
- Adapting to a changing market
- Implementing traceability programs
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Where to go from here
RaboResearch Food & AgribusinessPO Box 17100 (UC 053) 3500 HG Utrecht, The Netherlands