Structural shrinkage in the North American beef industry is expected to continue, perhaps even worsen in the near term, according to a new report from the Rabobank Food & Agribusiness (FAR) Research and Advisory group.
“It is a rare occurrence that all sectors within the cattle industry are profitable at the same,” says report author and Rabobank Food & Agribusiness Research and Advisory (FAR) group analyst, Don Close. “However, before the U.S. cattle industry can begin to fully rebuild after several years of contraction, it is necessary for equity recovery to take place in the cattle feeding sector.”
The report, “North American Beef: The Liquidation Continues,” finds high feed prices and severe drought challenges have placed significant pressure on the industry in recent years. At the beginning of 2013, the market was optimistic that the industry could turn the corner and begin to grow again. However, the second half of the year is bringing a less optimistic view as the industry contracts and, as a result, is at risk of becoming a higher-priced luxury protein.
“A number of complex challenges, including growing price spreads between beef and alternative proteins, excess capacity along the supply chain and dwindling profitability along the chain, are contributing to the shrinkage,” notes Close. “Rabobank expects domestic beef supplies to continue to contract and the supply chain to continue restructuring, making a rebound in the beef industry unlikely in the near term.”
The industry has settled into a painful process of contraction, excess capacity and restructuring. As a result, consumers are seeing beef prices escalating. The spread is widening between beef and other protein sources, and people are not only downgrading between selected beef items, they are more frequently opting for the other proteins.
This report outlines how feeder supplies, contracting North American supplies and Mandatory Country of Origin Labeling (MCOOL) legislation are contributing to the challenges faced by cattle feeders and processors.
The report, “North American Beef: The Liquidation Continues,” is available exclusively to clients of Rabobank and Rabo AgriFinance. Media can obtain the full report by contacting Sarah Kolell at Rabo AgriFinance.
About Rabo AgriFinance
As a leading financial services provider for agricultural producers and agribusinesses in the United States, Rabo AgriFinance adds value using industry expertise, client-focused solutions, and by creating long-term business relationships. Rabo AgriFinance offers a comprehensive portfolio of services that give producers the right products to prepare for, and take advantage of, market opportunities. Rabo AgriFinance representatives offer a wide array of financial services and knowledge to help customers realize their ambitions. This comprehensive suite of services includes loans, insurance, middle markets, vendor finance and sophisticated risk management products. Rabo AgriFinance is a division of Rabobank, the premier bank to the global agriculture industry and one of the world’s largest and safest banks.
About Rabobank International Food & Agribusiness Research and Advisory (FAR)
The Rabobank International Food & Agribusiness Research and Advisory (FAR) group is a global team of more than 80 analysts who monitor and evaluate global market events that affect agriculture worldwide. This international team works to gather key insights into commodity markets; conduct in-depth analysis of the factors that drive sector success (or failure); and look at the megatrends that ultimately influence clients’ capital strategy. These analysts are internationally respected experts in everything from protein to produce, inputs to oilseeds, and their knowledge is shared regularly with Rabo AgriFinance customers.