November 18, 2021
It’s almost the end of 2021 and most livestock producers are looking towards 2022. Rabobank released its annual Global Animal Protein Outlook.
The report looks at the beef, poultry, pork and seafood markets in North America and global issues such as sustainable production and African swine fever.
Beef producers will be glad to know beef cow liquidation is expected to continue in 2022, with stronger cattle prices and steep 2021 reductions slowing the pace.
Fed cattle supply vs. operational packing capacity =2022
Estimated fed cattle supply averaged 15 percent above operational packing capacity in 2020 and 2021.
By the second quarter in 2022, cattle numbers and packing capacity will find relative balance. Rabbobank expects 2022 annual fed slaughter to fall by 2.5% year over year. Although packers will still have healthy margins compared to pre-pandemic levels, the price spread between beef and cattle will begin a multiyear narrowing trend in 2022.
Even as domestic beef demand (willingness to pay) falls slightly from its pandemic highs, continued export growth, declining beef production (down 2.7% Year over year), and general economic inflation will provide price support.
Despite the production decline, China will spur a 2.8% year over year total US beef export growth in 2022, following 2021’s expected 17% year over year growth. We expect US beef cow numbers to fall 1.8% year over year, to a January 1, 2022 inventory of 30.6m head.
Another item for market watchers to consider is cattle production is expected to grow in Mexico. However, Canada is expected to follow the US downtrend.
While a large cattle-on-feed inventory will support early 2022 beef production, Canada’s annual production is forecast to decline by 2% YOY, as tightening US cattle supplies challenge feeder cattle imports and a decade of declining beef cow numbers limit domestic cattle supply.
Major drought conditions could push the 2022 beef cow inventory down by nearly 2% year over year.
While drought conditions throughout much of 2021 will slow Mexico’s growth in beef cow numbers, a 1.9% year over year increase in the 2021 calf crop will support a 2.7% year over year increase in beef production in 2022.
A look across the globe
The biggest beef news out of Brazil and Argentina is that the U.S.A. markets will bring export opportunities. Rabbobank expected to set a new record in 2022 with a 1 percent year over year increase, assuming China lifts it current ban on Brazil.
Live cattle and calf prices may have peaked, and while we expect prices to remain firm in 2022, this will be at lower levels than those recorded in 2021. Expectations of a new La Niña event may again impact the fattening of cattle on pasture, but recovery of the cattle herd since 2019, coupled with increased purchasing power, means domestic consumption should improve in 2022.
Rabobank expects production to recover by 1 percent in 2022. China’s demand for beef imports is expected to grow, with Brazil well-placed as the main supplier.
Lack of Labor in other producing countries could improve the competitiveness of Brazil and Argentina in trade markets
Tightness in the global beef market
Rabobank expects an ongoing tight supply in the global beef market through 2022, which will also support beef prices in Europe.
Economic recovery, improvements in foodservice on reduced Covid measures, and lower imports from South America due to continued tightness of supply will be positive for Europe’s beef supply chain.
Despite elevated prices, the structural decline in beef production will continue in 2022 for most of the EU27. Cattle supplies will lift production in Ireland and the UK.
Rabobank expects ongoing recovery in beef trade between the EU and UK. However, increased administrative burdens will likely continue to impact beef trade.
China beef supply will remain tight
Beef production is expected to maintain low-single-digit growth in 2022. Driven by the premiumization trend, beef consumption will continue to show resilience despite volatile pork and poultry prices.
Covid has shifted some beef consumption from foodservice to home cooking. Rabobank expect the lifting of Covid restrictions to see some beef consumption shift back to foodservice, but the entrance into home consumption will have profound impacts for the longer-term growth outlook. In the short term, consumption growth will be limited by high prices.
Beef imports will continue to increase in 2022, particularly if China and Brazil can resolve the issues following atypical bovine spongiform encephalopathy (BSE) cases. Imports of premium beef cuts will likely increase faster, driven by strong demand.
Australian production to lift in 2022
While seasonal conditions have been favorable, we do not believe the cattle herd has seen a strong rebuilding through 2020 and 2021.
Instead, many producers have taken advantage of good feed availability and high livestock prices to trade rather than rebuild breeding numbers.
This is prolonging the recovery process. Rabobank forecasts beef production will see a slight lift (around 5%) in 2022 – driven largely by a lift in slaughter numbers – with a larger increase occurring in 2023.
Higher production in 2022 will also support an increase in exports of about the same magnitude. Live export numbers are also expected to rise in 2022 with the gradual recovery in the northern cattle herd.
Stronger prices are expected to remain
If the favorable seasonal outlook that has been forecast into early 2022 transpires, it will support good feed availability for graziers.
A strong winter cereal harvest will also deliver strong availability of feed grains. In combination, good feed will continue to support producer demand, and coupled with positive export prices, Rabobank believes cattle and sheep prices will remain strong in 2022, although we expect cattle prices to ease through the course of the year.• Beef cow liquidation to continue in 2022, with stronger cattle prices and steep 2021
Other key items in the report show experts feel pressure on the operational packing capacity bottleneck will ease but increased operating costs will linger.
Animal protein supply chains face across the board cost inflation with the most significant increases coming in four key areas – animal feed, labor, energy and freight. But Rabobank sees agile business leadership as the most likely route to sustainable growth.
“This next year has the potential to accelerate structural change as a result of escalating costs,” says Christine McCracken, senior animal protein analyst for Rabobank. “Success will most likely go the players that adapt to the changing business environment; embracing consumer preferences for sustainability and preparing for a surge in demand as economies continue to reopen and adjust following COVID-19-induced lockdowns.”
On a consumer level, Rabobank expects global demand for beef to remain solid, demand for salmon and shrimp to show ongoing strength, improving demand for poultry and pork, and strong sales of alternative proteins.
Here some additional insights from the report:
U.S. chicken production will increase to support stronger exports and foodservice sales. Domestic egg and turkey markets should see a lift in demand as well from the normalization of travel and holiday activities.
U.S. pork prices are expected to remain strong to the start of the year, then will trail near-record 2021 levels as production increases and markets adjust to the implementation of Proposition 12 sow housing mandates.
Alternative protein sales should continue to grow strongly in 2022 with new products hitting the market.
The focus on sustainability will increase further in 2022, as food retailers and foodservice chains actively position on this theme with consumers, investors and regulators.
The annual Outlook report is produced by Rabobank’s specialist team of animal protein analysts based around the world.
Source: Rabbobank, which is solely responsible for the information provided and is wholly owned by the source. Informa Business Media and all its subsidiaries are not responsible for any of the content contained in this information asset.
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