Momentum grows in EU feeder prices

Jon Condon, 28/05/2012


There has been a distinct kick in premiums available for EU-eligible feeder cattle recently as market momentum grows in the face of EU quota access changes and regulatory improvements in imported beef distribution in Europe.

The EU’s grainfed quota, supplied by Australia, the US and several other exporter countries, will rise from 20,000 tonnes to 47,500t in coming months.

Earlier this month, the European Commission also announced changes to the quota import distribution process, hopefully ridding the system of speculators who previously perverted the import distribution mechanism (see Beef Central’s earlier report, “Breakthrough in EU grainfed quota distribution process.”)

In combination, these developments spell ‘opportunity’ for Australia, in supplying into the highest-paying beef export market in the world.

The current premium for EU feeders is arguably the highest it has been since the EU grainfed market access opened up for supply out of Australia 18 months ago. There was a short period around November where the differential might have hit 10c, but is definitely larger now.  

Specialist EU supply chain co-ordination company EU Premium Beef, an offshoot of Allied Beef, told Beef Central yesterday that eligible flatback steers are currently making 205-210c/kg liveweight, with suitable heifers 10c/kg less than that. One large lotfeeder/processor this morning was offering 210-215c in Southern Australia 205- 210c in the north for suitable milk tooth steers.

A month ago, those same steers were worth around 190c/kg, displaying only a small premium over non-EU cattle.

“What’s happened is the non-EU market for those cattle may have changed 5c, now around 185-190c, while the equivalent EU-eligible cattle has firmed anywhere from 10-25c/kg over the same period, subject to cattle type and location,” Allied Beef’s James Maclean said on Sunday.

Today’s 210c/kg EU-eligible steer is typically 400-500kg liveweight, three-quarters British or better – not unlike a Woolworths steer.

“What’s happened is a movement from a 5c/kg premium for EU to a 15-25c, premium, in places,” Mr Maclean said.

Going back a few months, a lot of EU-eligible heifers were defaulting back into domestic non-HGP supermarket programs, due to price signals and lack of demand. But those same cattle are now making a distinct premium as EU feeders.

Last week, for example, Queensland processor Nolan Meats was offering 170c/kg for non-implanted Indicus type heifers (180c for equivalent steers), for a domestic retail non-HGP program, whereas if they were EU-eligible, those same heifers were a good 15c/kg above those rates last week.  

Current prices are coming from both larger and smaller EU grainfed operators, both integrated feedlot/processors and independent feedlots with EU accreditation. While the concentration of EU-eligible feeding appears to be occurring in southeast Queensland, it extends well south into sites like JBS Riverina.

Mr Maclean said it appeared the market access changes described above were driving the current lift in demand for feeders, possibly linked also to foreign exchange movements, through a softer A$.

Comments made by MLA’s Europe region manager, Jason Strong, also suggest European importers are new becoming more ‘comfortable’ with the new quota distribution system, and may be in a mood to explore the trade with more vigour.

As an indication of the recent growth in trade in EU-eligible cattle, Allied Beef’s ‘EU Premium Beef’ business recently notched up turnover of 1000 EU cattle in a single week – a record for Allied’s business extension that started eight months ago.

To be fair, that statistic represented transactions not only in feeder cattle, but breeder replacements and store weaners also.  The cattle were drawn from a large catchment area extending into central and northern NSW as far south as Bathurst, and southern, western and central Queensland.

Genetics ranged from straight British to crossbreds, to some higher grade Indicus – demonstrating the wide genetic pool eligible for EU supply.

EU Premium Beef works with a network of EU-eligible breeders, backgrounders and lotfeeders across the three Eastern states to facilitate the smooth movement of cattle with the system.

While Allied Beef did a little trade in EU cattle earlier, it was decided to establish a dedicated business unit to service the EU trade, based on demand and feedback from market participants.  

The current market signals are also being reflected in fed cattle, where eligible EU grainfed steers are making up to 410c/kg carcase weight in places. Compare that with conventional 100-day cattle spot rates this week at 365-375c.

While EU fed steers inevitably cost more to produce than implanted 100-day cattle due to slower rates of gain, that current 35-45c split provides a lot of incentive, worth around $140 a head on Jap ox. At different times over the past 12 months, however, the variance has been back to around 10c, hardly covering the HGP production sacrifice.

Another observation is that it is at the feeder cattle, and fed cattle stages where distinct premiums for EU compliance are being seen. Eligible weaner cattle in saleyards show little distinction in price from equivalent non-accredited lines, often as little as 2-4c/kg liveweight.

It’s the EU producers taking cattle through to feedlot entry or slaughter weights who are receiving the reward.

Australia’s EU supply chain continues to slowly accumulate stakeholders who previously had not engaged in the system. Additionally, established players like Mort and Co’s Grassdale feedlot is being demonstrably more aggressive in the marketplace. Six months ago, JBS did not offer an EU price above conventional cattle, but now has a regular presence through its feedlots and plants.

Companies like Allied Beef are also fielding more calls from non-EU producers inquiring about entering the system.

“For breeder operations, they technically don’t need to change anything they do at all,” Mr Maclean said. “We bought a mob of 300 head at Blackall sale recently, and only two out of the 20 lots purchased were HGP treated. People don’t realise how close they are to eligibility,” he said.

“A few years ago it was more complicated because EU suppliers had to use individual animal identification, when nobody else did. But in more recent times, everybody is in the same boat, with NLIS requirements,” he said.

“Producers can easily split properties, with a paddock or two kept for trading, and the balance used for EU production if they want.”    


Producer view:   

Roma (Qld) EU-accredited beef producer Grant Maudsley confirmed this morning that he negotiated 210c/kg on eligible steers sold last week and being trucked to the feedlot tomorrow or Wednesday.

The steers were last year’s weaners – milk-tooth flatback Shorthorn-base with some Santa/Simmental influence averaging about 460kg.

“That’s good money, and at that rate, I could not consider putting them on oats for the (Hilton high quality EU) grassfed market,” Mr Maudsley said.

The Maudsley family is trying to expand its EU breeder numbers at present on its Mitchell-district property, Mackinlay, but upsizing by purchasing eligible EU breeder was currently “very problematic,” he said.

Hopefully some changes would be made to regulatory requirements that would make that process easier, and less restrictive.



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