While there was some growth evident in rates of beef kill in southern Australia last week following a return to holiday-free rosters, numbers in Queensland marked-time as a result of recent flooding, sale cancellations and logistical disruptions.
Many beef processing plants in Central and Southern Queensland and northern NSW recorded one or two-day closures last week, as the flow of cattle dwindled.
Although skies have now cleared, the current week also remains a day-to-day proposition for some plants, as major access roads to slaughter cattle remain impassable in some areas, and bullock paddock conditions are little better.
As summarised last week, any modest improvement in saleyard or direct consignment slaughter cattle prices due to current rain-driven supply shortages is likely to be only short-lived, given the sustained pressure being faced in international markets by processors.
Reported on Beef Central yesterday, the A$ crept back to six-month highs on the weekend, going close to US108c at one point.
One reliable processor contact reached by Beef Central yesterday said processor losses on grassfed export steers were currently at least $50-$60, and possibly higher. At the fifth quarter end, tallow and meatmeal have also slipped a little in price since the start of the year.
We will see in coming days how the equivalent 100-day grainfed ox figures look, with Beef Central’s regular breakeven calculation due later in the week.
If it is any consolation, US beef processors are in exactly the same boat, as record high feeder cattle prices and drought-driven shortage of numbers pushes up input costs, with little prospect of extracting higher prices at wholesale level. Some say 2012 is shaping up as a war of attrition in US processing: whoever has the deepest pockets wins. Rationalisation in the US industry now looks almost inevitable, one source suggested.
The only real prospect of any significant slaughter cattle price recovery in Australia in the immediate future would be further sustained, widespread rainfall, slowing numbers to a trickle.
While the big downwards adjustments in grid prices seen in mid-January have not budged over the past seven days, if anything, trading conditions for exporters continue to worsen.
Demand out of North Asia and Russia remains particularly subdued, with a trading in the grinding meat market one of the few bright spots on the horizon.
One key contact said while North Asian buying interest was still very subdued, there had been a “very modest” price improvement, in US$ terms, in response to recent cattle kill shortage due to rain and holidays. That increase, however, has been further offset by the most recent currency movements.
“The small rally is due to a little fear of shortage of supply creeping in, rather than underlying demand. The Japanese and Korean trade has heard of production cuts in Queensland due to the weather, and are reacting to that,” our contact said.
“We are talking very minor improvement in price, but at least it has stopped what was a consistent downwards trend in price seen since the start of the year.”
In the US, market analysts report that imported beef prices were steady to higher last week, in part due to some market participants covering short positions but also higher asking prices from Australian suppliers, linked to currency movements.
Business activity was generally slow, with end-users opting to sit on the sidelines and limiting their purchases beyond late February and early March. There was some talk that US FOB lean prices were being pushed hard by traders that were caught short and looking to fill orders.
Analysts suggest that current prices largely reflect the fundamentals in the market, with domestic US beef supplies tightening-up significantly and imported supplies insufficient to meet demand.
While Australian beef supplies are somewhat more available than this time a year ago (when floods were greatly hampering supply), they still remain relatively small compared to the five year average.
Also, cow slaughter in New Zealand continues to run well below year ago levels and this has limited both the supply of NZ beef coming into the country as well as product offered in forward slots.
As well as drought, US beef demand will continue to be a strong influence on trade prospects in 2012. On that front, the situation appears to be improving, analysts say. The latest US Restaurant Performance Index showed a significant jump in December, with both the current situation and expectation component at pre-recession levels.
It remains to be seen whether the US foodservice improvement is sustained in 2012.
“Plenty of challenges remain, but slow recovery in the US economy and a more confident consumer should be supportive of meat protein prices going into the northern hemisphere grilling season,” analyst Len Steiner said.
Short supply props-up market
As mentioned earlier, short cattle supply is the only thing stopping the Australian cattle market dropping further this week.
Grid quotes yesterday illustrated the subdued processor buying mood, mostly back 20c/kg to 25c/kg dressed weight compared with mid-January rates. Southeast Queensland grids yesterday were typically 345c for best 0-2 tooth grassfed ox; 340c for 4-tooth; MSA steer 360c; EU steer 360c; and best cow 320c-330c.
With the previous week’s kill shortened-up by the Australia Day public holiday, there was a little expansion evident in last week’s kill. Eastern States slaughter numbers for the week ended Friday, as reported by NLRS, rose 5pc to 118,956 head.
Nippon Meat Packers’ Oakey (Qld) plant lost a production day last week, and would probably lose another this week, company sources said. The company’s Mackay factory remains closed as part of a three-week shut-down.
Teys Australia stopped the chain for three days last week and another day yesterday at Lakes Creek in Rockhampton, while Biloela and Beenleigh are still day-to-day propositions this week.
JBS Australia skipped a kill at Townsville yesterday, and dropped a shift at Dinmore late last week. Regional road closures, especially on the western Darling Downs and further north, could cause further disruptions.
Queensland’s kill for the seven days ended Friday reached 54,876 head, virtually unchanged from a week earlier.
Kills in all other states rose in response to a return to five-day kills after the earlier Australia Day holiday. NSW lifted to 30,769 (+10pc); Victoria, 20,506 (+16pc); South Australia 8710 (+9pc); and Tasmania 4095 (+20pc).
• The NLRS Eastern States Young Cattle Indicator closed yesterday at 395.5c/kg, up 2.5c on a week earlier. The heavy steer indicator (182.5c) is up 4c on a week ago, while medium cows (144c) are positive 4c.