If recent history is anything to go by, Australian lean grinding beef into the US could hit prices as high as US215-220c/lb CIF by Christmas, a respected market analyst suggests.

A combination of factors led by US beef herd decline, the prolonged impact of drought, the sharp rise in feedgrain prices in the US, a declining herd size in Canada and normal seasonal demand cycles   are all supporting the prospect of a substantial rise in imported grinding beef prices by end-of-year.

There is increasing trade speculation evident that US lean beef prices have ‘nowhere to go but up’, should moisture conditions improve into the northern hemisphere autumn and heading into early next year, says Len Steiner, from Steiner Consulting.

Also supportive of imported beef prices is the fact that some of the turbulence created by the bankruptcy and plant sales of AFA Foods (a large US grinder supplying burger patties to major restaurant chains, read more from earlier Beef Central reports here) has now dissipated.

“There was plenty of pent-up demand which is now showing up in the market,” Mr Steiner said.

As the chart here shows, prices for imported lean grinding beef have been steadily rising over the last four years, in concert with the reduction in US domestic and imported lean beef availability. The chart also shows a tendency for the market to kick from around October through to year’s end.

The steady increase in price has also come against the headwind of less competitive Australian currency versus the US$.  

“While we could see some softening in prices after the Labor Day holiday (first week of September), the expectation is for imported beef values to drift higher through the end of the year,” Mr Steiner said in his weekly report last week.

In 2009, the price of imported 90CL boneless beef rose from an early October low of US$1.34c/lb to $1.42c by the end of December, a 6pc premium. The following year, prices during this period rose 17pc, and last year, by 13pc.

“If prices this year follow the same trend as a year ago, and that is a big if, we could see imported lean beef values pull back by a US10-25c by the end of September and early October but then rally to US$2.15 -$2.20c by the end of the year,” Mr Steiner said.

He stressed that this assumption was simply looking at the trends of recent years, with no regard of supply conditions, exchange rates, and the price of domestic US lean beef.

Canadian beef herd also in decline

Statistics released last week by the Canadian Government also illustrate the decline in beef production north of the US border. A survey of Canadian cattle operations showed that Canadian inventories remain low compared to where they were a few years ago and the beef cow herd is smaller than what it was a year ago.

Cattle inventories in Canada have declined steadily since the discovery of BSE a decade ago, thus limiting export demand. The nation’s beef cow inventory at July 1 was 3.96 million head, up 0.1pc on this time last year but 27pc smaller than what it was in 2005.

Total cattle inventory in Canada as of July 1 was 13.52 million head, 0.1pc smaller than last year.

The decline in the overall inventory was largely a result of a smaller calf crop in 2011, down 3.5pc from the previous year.

Mr Steiner said while there had been some moves towards herd rebuilding in Canada, the process would likely be very slow considering the depth of the breeding herd liquidation.

The most recent spike in feed costs across North America was also an impediment. Canadian heifers held back for herd rebuilding as of July 1 were 662,200 head, 20,000 head or 3.5pc higher than in 2011.

The combined US and Canada cattle inventory at July 1 was 111.32 million head, 1.9pc lower than what it was a year ago. Cattle inventories are now down 7.8pc compared to a year ago.

The decline in the North American (Canada and US) beef cow herd has been even more dramatic. The beef cow inventory as of July 1 was estimated at 34.46 million head, 11pc smaller than what it was in 2005. The beef cow herd was down 2pc from a year ago as a smaller calf crop and ongoing liquidation in the US reduced the number of female animals in the herd.

And the US liquidation would likely continue a little longer given the sharp rise in feed costs and poor pasture conditions, Mr Steiner said.

US cow and bull slaughter is currently following a similar pattern as a year ago, currently above 140,000 head per week, and possibly getting to 150,000 head by September.

Imported 90 CL trade lifts 2-3c

In trade reports last week, imported beef prices in the US continued to trade very firm, with lean and extra lean product gaining US2-3c over the previous week’s levels. This trend supports comments made on Beef Central last week by Sanger Australia director, Stewart Hanna.

Higher prices were also paid for imported 85CL trim in the US last week, as the price of domestic 50CL beef trim has gained almost 15c/lb in the last two weeks, now trading in the mid to high 50s. This compares with the recent low point in the 40s.

Trim offerings from Australia remained limited last week and asking prices appeared to advance daily. Some CIF buys spurred-end users to action as well as speculation that US lean beef prices can only rise, should moisture conditions improve into the northern hemisphere autumn and early next year.