Australian grinding beef prices into the US are currently at their lowest level in a year when measured in Aussie dollar terms, as the drought-afflicted US beef industry last week notched up its largest weekly kill for the year.

Prices for 90CL imported grinding cow beef last week and the week before into the US were quoted at around A807-809c/kg CIF, their lowest point for 2022, and indeed stretching back to August 2021.

Compare this with imported 90CL prices back in February that went close to 940c/kg, and it’s been a gradual 14pc decline since then.

The softer prices into the US come at the same time that Australian slaughter and store cattle prices are again on the ascent, having fallen sharply during early August.

Direct consignment grassfed heavy steers four-teeth in Queensland have lifted around 40c/kg from rates seen in July, now sitting at around 735c/kg. Heavy cows that were making only 620c/kg six weeks ago are again back to 670c/kg.

Reports out of the US last week suggested drought conditions had shown some modest improvement in the previous two weeks, although large areas with extreme and exceptional drought remain in extremely poor shape.

An Australian beef exporter with strong connections into the US market told beef Central this morning that Australian beef volumes into the US were looking stronger in August (monthly export statistics are due Friday or Monday next week).

Australian chilled and frozen beef exports to the US in July reached just 11,700t, down 15pc on the previous year. August is shaping up better, with expectations around 14,000t – one of the healthier monthly tonnages this year.

That comes as something of a surprise to the casual onlooker, given massive US beef kills since July, caused by drought cattle liquidation.

Last week was the biggest weekly kill recorded this year in the US, topping 678,000 head. Compare this with Australia’s modest national tally last week of +93,000 head, as the industry continues its herd rebuild after our own 2019-20 drought, and continued very favourable seasonal conditions.

“The US cow kills (primary source of grinding meat for hamburgers) was still very, very high last week – but at the same time the US is still killing its way through an awful lot of fed cattle as well,” the trader said.

US fed cattle numbers remain extremely high, because more young cattle were placed onto feed earlier, as the drought encroached across large cattle areas in the US.

Also reflecting this, the total supply of US beef in cold storage at the end of July was pegged at 231,000t, 27pc higher than a year ago and 15pc higher than the five year average.

US consumer demand remains solid

“What’s remarkable is that despite all this abundant supply, the US beef market has not collapsed,” the trader told Beef Central.

“Consumer demand for beef through both the food serviced and quick-service restaurant segments and retail for home consumption remains pretty steady. In fact retail sales are up – consumers are still spending, and the US economy remains reasonably buoyant, despite the prospect of further interest rate rises.”

The US consumer continues to soak-up a lot of the current abundance of US beef, but it is also having some downwards pressure on Aussie imported beef prices.

“The US beef market came off – there’s no doubt about it – but at the moment it appears to have levelled out,” the trade contact said. “It’s actually a pretty boring market at present – there’s a little bit of imported spot meat being traded, but not much being offered out front, that customers want to commit to.”

From an Australian supply perspective, the reluctance to offer meat forward at current prices was being influenced by the cattle market, which had gone ‘flying back up again’ this month.

“Certainly, given the latest La Nina prospects, it’s looking like Australian cattle will be dear for the rest of the year, at least. There’s a greater disconnect emerging again between Aussie cattle price and what we can get for grinding beef and other meat into the US,” he said.

In US currency terms, the price distinctions between leaner and fattier CL imported grinding beef presently are a lot tighter than normal, he pointed out.

A 75CL grinding meat out of Australia is currently asking US250-255c/lb, CIF. At the same time, extremely lean 95CL is only making US260-265c/lb, and 90’s perhaps US5c less, or the equivalent of A790c/kg CIF.

That perhaps partly reflects the abundance of non-fed US cows currently being processed, due to drought. In normal times, many US grinders like to blend fattier domestic US grainfed trim with leaner Australian or NZ cow trim, to produce the perfect 78CL hamburger patty.

Other export markets softer, pushing more beef to the US

Continued strength in US consumer demand partly explains the rise in Australian export volume into the US this month, but so to does some recent demand softness in other key markets like Japan and Korea.

“In general, all markets for Australian beef (including domestic) are back. But there are also some distortions occurring,” the trade contact said.

“August is shaping up as a record volume month for trade to Korea, for example, but that’s largely because of the Korean Government’s earlier tariff moratorium on imported beef, designed to help the local economy.”

Some think August export volume to Korea might reach 20,000 tonnes, for the first time. As soon as that tariff-free tonnage amount is reached, however, trade into Korea will soften again. One trader described the Korean market this week as ‘becalmed’, because of it.

That’s unusual, because Korea is normally a very orderly market for Australian exports, taking reasonably consistent volume each month.

The downside is that there is now a lot of imported meat sitting in cold storage in Korea that the market would not normally consume, but is there for tariff avoidance reasons.

Demand out of Japan presently is also flat, for a variety of reasons, especially for traditionally high demand cuts like imported navel-end briskets. The surge in US export supply, at relatively competitive prices, is inevitably a part of that.

On the Australian domestic market, there has been talk of some buyers looking to secure supplies of 85CL grinding beef and similar descriptions this week as a hedge. Prices that were around A800c/kg two weeks ago are now being discussed closer to 850c/kg again. Rising cattle prices this month is part of that, as is the prospect of continued low rates of kill, due to favourable weather.

Given the processing industry is about to enter spring having logged only two weeks of kills this year above 100,000 head, it’s looking increasingly likely that production rates will not rise much – it at all – through the final four months of operations this year.

What happens after the US drought breaks?

The big question now emerging for Australian beef exporters, especially those dealing in hamburger grinding beef to the US, is what happens when the current relentless US drought ends?

The current rampant US cow liquidation will come to a grinding halt, history suggests.

“Everyone in the trade in the US is sitting there saying US meat prices are going to go higher,” the trading contact told Beef Central. “People are resigned to that. But when it starts, and how high those prices go is anybody’s guess. Nobody can predict how long the US drought will last.”

The $64 question is whether the US just pays what it has to, in order to secure requirements out of Australia and NZ. Volume out of South America remains restricted by quotas – 20,000t out of Uruguay, 20,000t out of Argentina, and 65,000t for the others (excluding Australia, which has its own quota of 300,000t).

Some stories are circulating that Brazil is shipping product to the US now, and putting it into bond storage for entry next year, to avoid tariff spikes due to quota. Whether that is true or not, cold storage space in the US is at an ‘absolute premium’ at present, due to logistics issues, beef production volume and other factors.

Some market watchers think US domestic 90CL manufacturing beef next year might shoot up beyond US300c/lb again – a figure rarely seen, but witnessed during the 2020 COVID shutdown of 40pc of US meat processing capacity due to sickness.

If that happens, Australian imported could easily heady to US280c/lb, or higher.

“The question is, is that going to be enough for the Australian industry, given the likelihood that we are heading into another bumper spring summer period, and herd rebuilding is still in full swing?” the trader asked.

“If the BOM La Lina forecast is right, we are not going to have a lot of 90CL manufacturing beef to sell, again next year. Cow prices would have to get crazy high, for cattle producers to sacrifice even more to slaughter, when they are still trying to produce as many calves as possible.”

“But as soon as it rains comprehensively in the US, the cow slaughter – and all cattle – will diminish almost overnight, so keep an eye on it.”