[SINGAPORE] Tightening meat supplies in top consuming nations such as the United States and China are boosting the global outlook for cattle and hog markets, offering investors some reprieve from the sharp downturn in many commodity prices.
US cattle markets are expected to rally after four straight months of decline, with shipments from the country's biggest supplier, Australia, set to dwindle as annual import quotas start to run out.
While in China, which consumes more than half the world's pork supplies, lower production has driven hog prices close to record highs after farmers cut herds in response to low prices in recent years. "Any reduction in US imports from Australia or anywhere else will support beef and live cattle prices," said Pawan Kumar, director for food and agricultural research at Rabobank in Singapore. "We can already see some impact as cattle prices have started getting support even as most other commodities are still under pressure." Large speculator net positions in US live cattle futures and options last week recorded their first increase after eight consecutive weeks of decline, indicating improving investor appetite. "We expect the Australian quota to be exhausted by October, resulting in tight supplies towards the end of the year," said Simon Quilty, an independent Australia-based livestock consultant.
He added that Australian imports would probably account for 40 percent of US beef consumption in 2015.
Australia, along with other nations such as New Zealand and Argentina, have quotas under which they can ship only certain amounts of beef to the United States at reduced tariffs. The system is designed to protect US farmers from an influx of cheap imports.
The fall in Australia's beef shipments will come as US consumption rises during the winter, piling further pressure on supplies.
The US cattle population dropped to a 63-year low in 2014 after years of reduction in herd size, cutting meat supplies to supermarkets and boosting the need for imports.
In China, where pork can be used in everything from savoury porridge to steamed dumplings, imports of the meat are forecast to climb 54 per cent this year to 2 million tonnes, with the supply squeeze expected to last well into next year.
Rabobank says China's hog supplies have dropped to 384 million head from an all-time high of 468 million at the end of 2013.
As well as investing directly in pork markets, investors also have the option of buying shares in companies that produce the meat such as Hormel Foods, whose shares hit a record high this week.
Mike Zuzolo, president of US-based Global Commodity Analytics, whose clients include hog farmers, said that European producers would likely reap the greatest reward from climbing shipments to China. But he added that the outlook for pork imports by China would also help producers in other regions. "It's ... a rising tide that lifts all boats scenario when it comes to increasing (Chinese) consumption, which is good for everybody in the protein sector," he said.
Meanwhile, traders in Europe said potentially huge flows of speculative money from China to US markets could also drive agricultural commodity prices higher.
Stung by losses in the Chinese equity markets and outlook for lower crude oil and industrial metals prices, analysts say funds could be looking at agricultural commodities, including livestock for possible investment. "Chinese investment fund money flowing into agricultural commodities could create upward impetus as US and European fund buying did a couple of years ago," said a German trader.