2018 marked by volatility in the protein market

Despite the year starting off strongly, pressure on some of the world’s major markets resulted in headwinds being experienced later in 2018. In its third quarter report, Rabobank outlined a laundry list of issues that were creating uncertainty and market volatility in the US, most of which affected the global beef trade.

The slower than expected rate of expansion (early estimates were for a 5% increase), had been the result of very strong basis levels throughout the first half of the year, encouraging hedged producers to market cattle aggressively. Also contributing to lower volumes was the general fear that increased cattle numbers would impact on the availability of feed, and along with seasonal factors, drive prices down. “Early expectations are for beef production in 2019 to be up 2,5% to 3%. Growth in domestic production is also squeezing imports, which remain static compared with 2017,” the report said.

Dry conditions also continued to have a softening effect on the Australian cattle market. The Eastern Young Cattle Indicator fell to A$4,50/kg (about R45,14) in mid-August, the lowest level in three years. The lower than average rainfall forecast was expected to keep downward pressure on prices for younger, lighter classes of cattle and cows.

Strong export markets and the normal seasonal decline in cattle supplies provided the foundation for improved cattle prices in Brazil during the third quarter. After suffering a large decline in June, Brazilian beef exports rebounded strongly in July. The national truckers’ strike, commencing in late May and lasting almost two weeks, severely limited exports. Despite this, however, strong exports saw volumes increasing 8% in the first eight months of 2018. The global pork industry was the main driver behind the expansion of total global protein supplies. By the third quarter, pork production increased 4% with an additional 4% to 5% rise expected in 2019. In addition, poultry production increased 2,5% during 2018, but price pressure and negative returns to processors were expected to limit expansion in 2019, despite new processing facilities coming into production. Other concerns included the outbreaks of avian influenza in Asia, Europe and Africa, and African swine fever in China.

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