The cattle market will be “substantially less volatile” in 2016, Rabobank said, as the glut of heavy cattle works its way through the system.
Rabobank said 2015 had been marked by “unbelievable volatility” in cattle markets, as prices fell from record highs of $170 a tonne to a $120 a tonne, level with 2014 prices.
Prices were supported thanks to low supplies of slaughter-ready cattle.
But cheap cattle feed, and high beef prices, encouraged feedlots, where pasture-fed cattle are finished on grain for slaughter, to hold onto animals for longer times, in order to increase slaughter weights.
And as these heavy cattle came to slaughter houses, beef output from meat packers increased.
“Price erosion was driven by consumer resistance to record-high retail beef prices, an import/export trade imbalance and cattle-feeding economics that caused feeders to feed to record carcass weights,” Rabobank said.
Calmer markets ahead
But the bank said that the volatility would ease next year, as the glut of heavier cattle works through.
“US cattle numbers are rebuilding, and visible effects of a larger cow herd are expected,” Rabobank said.
Still, the high cost of feeder cattle, which are cattle coming off pasture, ready for feeding, will keep margins tight, despite the ample supplies of feed grains.
The slower pace of feedlot placements will limit supplies coming off feedlots, which will “likely support prices into the spring”, Rabobank said, seeing prices recovering to the “mid-$150 per tonne level”.
But Rabobank forecast prices to ease later in the year, thanks to competition from other proteins, as Rabobank pinned seasonal lows around $130 a tonne.
“A conventional seasonal recovery is expected by the end of the year, with prices in the mid- to high $150 a tonne range”.
Rabobank said that prices could be driven higher by animal health issues in competing protein sources.
A fresh outbreak of bird flu or porcine epidemic diarrhoea virus (PEDV) could push up prices for pork and poultry, increasing consumer demand for beef.
And if El Nino drives an abnormally wet year in the US, that could also support prices, Rabobank said.
Meanwhile, the main threat to prices was posed by the strengthening of the dollar, which would hit US beef imports.
Lean hog prices are seen enjoying a seasonal rally in the summer 2016, with prices forecast to average 69 cents a pound over the whole year, compared to a forecast average price of 65 cents a pound over the last three months of 2015.
US pork production grew in 2015, Rabobank said, following a slump in production caused by the PEDV outbreak in late 2013 to early 2014, which pushed prices to an all-time high.
Pork production has increased by 7-8% in 2015, Rabobank said, leaving prices 25% below 2014 levels.
Pork production expected to remain at 2015 levels next year.
Rabobank sees pork exports to China continuing to grow next year, after one of the largest herd culls in history in that country.
“In October, seven US processing facilities became eligible to export to China, increasing the amount of eligible US pork capacity from just over 50% to more than 75%,” Rabobank said.
But as with beef, Rabobank noted the threat posed to exports by a stronger US dollar.
(Source – http://www.agrimoney.com/news/cattle-market-rollercoaster-to-calm-in-2016-rabobank-says–9058.html)