Markets

North sees ‘direct, competitive price tension’ between processors and livex

Jon Condon, August 12, 2015

It hasn’t happened since 2010-11, but there is clear evidence of direct, competitive tension between southern meat processors and live exporters across Northern Australia, as a result of recent sharp rises in slaughter rates and other factors.

And the latest Indonesian quota release for 50,000 slaughter-ready cattle above the old 350kg liveweight limit will only add to that market dynamic.

tanami-1Processors from Victoria, South Australia, Queensland and even WA have been swarming all over Central and Northern Australia over the past six weeks, pulling large numbers of cows and bulls south for slaughter up to 2700km away, at very attractive rates.

Operations manager at Tanami Transport in Alice Springs, Mark Castagna, said the flow of slaughter cattle into southern states had exploded over the past couple of months.

“We’ve currently got 19 road-trains in operation – ten of our own, plus nine subbies – but we can’t keep up with demand,” Mr Castagna said.

“There’s big numbers involved, and going everywhere. Some (mostly mickeys) are going to Kalgoorlie, where they are being picked up by others for transport through to WA; processors in southern parts of South Australia and Victoria (Greenham’s Tongala, Teys Naracoorte and Midfield Warrnambool have been particularly active on cows); Roma in Queensland; and some are still heading north to Darwin,” he said.

“I’ve never seen so many processors active in Central and northern parts of Australia.”

Mr Castagna said the cattle were mostly being drawn out of the Central Australian region around the Alice, and further north to about Helen Springs, north of Tennant Creek.

Beef Central has heard of recent prices of up to 550c/kg carcase weight, for cows delivered Victoria (granted, carrying a 2700km freight bill), and scrub bulls, tipped, for 220c/kg liveweight delivered Cloncurry.

Interestingly, some of those trucks heading south, at least, are back-freighting lighter cattle for the traditional Indonesian feeder trade out of Darwin, with big numbers of Queensland cattle currently being ‘depoted’ on nearby floodplain country.

 

Cattle being lined-up for Indo slaughter trade already

Beef Central understands that while there is not yet any indication of when boats will start to load for the new Indo +350kg slaughter market, cattle are already being lined-up speculatively around Darwin, based on permits and orders.

“People have been gearing-up for it, knowing it was highly likely to happen – given recent retail prices in Jakarta,” a contact said.

Former NTCA president, now private consultant, David Warriner agreed that big price increases for slaughter cattle since about May, and growing shortage of cattle further south had pushed processors into a position of more direct competition with live export.

That was especially so for heavier cattle, more attractive to processors, which have been going into Vietnam in increasing numbers, and which will shortly also be directed into Indonesia under the new 50,000 head slaughter-ready protocol.

“We’ve only seen this sort of direct competition with processors for northern cattle twice,” Mr Warriner said.

“It happened last in 2010, when Indonesia pulled back the weight restriction to 350kg, and the following year when the livex trade closed altogether. Vietnam started to take a few heavy cattle in 2012 and more in 2013 and 2014, which coincided with the rise in turnoff in the south due to drought.”

“We have not seen these numbers heading south for processing since 2012”

“The northern cattle market is perhaps only now re-establishing itself under these changes. There are always different prices in different ports, due to freight differentials, but generally, processor prices are now very competitive. At the end of the day the live export supply chain right through to the consumer in Asia is probably more profitable than the boxed meat trade through to Asia, depending on location, but processors are a lot more active up here presently.”

Mr Warriner said the latest quota release for heavy cattle into Indonesia would simply add more demand tension into the equation. “The price will go up, there’s no doubt about that, but it again could give the live export trade the upper hand.”

He said there was no sign of any quotes in the market yet for the heavy cattle opportunity into Indonesia, but typically, cents/kg rates on heavier cattle tended to be a little less than on lighter stock.

“It will be less than the feeder cattle rates, but I’d expect it certainly to be in line with the Vietnam slaughter cattle prices – perhaps even a little more, because of the freight differential,” he said.

Reports suggest heavier cattle for the Vietnam trade in recent weeks have fetched around 220c for cows, 250c for steers delivered Darwin. Slaughter cows for consignment to southern processors have recently been making around 180c, on the scales south of Darwin, plus a monumental freight bill.

“That direct processor/livex competition will only grow with the Indonesian announcement.”

Beef Central asked Mr Warriner whether the arrival of additional heavy cattle demand for Indonesia in coming months would push southern processors out of the market in the north.

“If they want the cattle, they’ll have to pay for them. Indo can certainly out-compete the processors on the same cattle, with the freight component attached, and has always had the capacity to do so.”

“Their cost to process is nothing compared to ours.”

He suggested it could conceivably push the processor’s viable catchment area further south for a period, but Indonesia would “suck-up those 50,000 head pretty quick.”

Mr Warriner suspected the slaughter cattle quota would be fully utilised by the end of September, with supply out of the NT and Queensland, but said it was ‘on the cards’ that Indonesia would again issue more quota for heavy slaughter cattle in the fourth quarter this year.

“It’s always hard to anticipate what Indonesia will do, but they are going to need a lot of slaughter cattle to put any real pressure on that current retail price in Jakarta above 140,000 Rupiah,” he said.

 

What does it mean for AA Co’s Livingstone plant?

Industry attention is also starting to focus on the impact the Indonesian slaughter cattle opportunity will have on AA Co’s Darwin abattoir project. Many see it (likely liveweights 380-500kg) as providing greater competition for the sort of cattle the plant wants to kill.

Click on image for a larger view

Click on image for a larger view

The Livingstone plant was built largely on the premise that Indonesia would continue to take lighter cattle only, and before the recent surge in trade in heavy cattle into Vietnam.

While the grinding meat price into the US is surging back to higher levels again this year, local sources say AA Co has not been in the NT market buying a lot of cattle – instead utilising its own herd resources to supply raw material for the plant.

But what happens if there is more money for AA Co in selling cull cows and bulls live into Vietnam or Indo, under the new protocol, than there is in slaughtering at Livingstone?

The prospect was discussed at AA Co’s 2013 annual general meeting, when a shareholder asked the board whether the broader business would ‘shelter’ the Livingstone plant in this way.

Chairman Don McGauchie assured him the Darwin facility would be run on its merits, and would not be artificially supported in a financial sense by ‘discounted’ cattle sourced through the broader AA Co cattle operations.

 

North Queensland follows trend

Townsville private stock agent Tim McHugh told Beef Central that the pricing gap in his region between live export and slaughter options had ‘closed right-up,’ as processor rates had risen this year.

“If anything, the meatworks have the upper hand right now,” he said.

“It’s perhaps the first time that has happened since the Indonesians applied its 350kg weight limit on livex cattle back in 2010. The only exception was a short period last year when processors had an advantage, but then live exporters again got on top – but that was only due to cattle numbers hitting the market as conditions deteriorated.”

“Right now, processors have a serious advantage in North Queensland. Live exporters have not taken a cow for a long time out of Townsville. The best bullock money we had seen earlier was around 240c/kg liveweight, but a couple of weeks ago I sold bullocks for a client at the Charters Towers saleyards for 250c/kg live.”

While all Queensland processor grids have risen sharply since May this year, the comparisons between grids for plants in northern and southern parts of the state have narrowed dramatically. A few months ago there was a separation of 50c/kg between Townsville/Mackay and equivalent grids in southeast Queensland. That gap today stands at 10-15c, perhaps 20c in places.

In an indication of the changing supply situation further north, one substantial northern Queensland cattleman booked 18 decks of steers into JBS Townville a fortnight ago, slaughtered on just one week’s notice.

Mr McHugh said one of the advantages live export continued to have was flat rate on cattle, with no discounts once they fitted the spec. “They go over the scales Charters Towers and that’s it – not discounts,” he said. “It’s something producers here have to weigh-up, in the current competitive climate for cattle.”

“Also, if the business is done over the scales, Charters Towers, there’s probably a 2c/kg advantage in favour of live export, over freight to the coast.”

But is the current competitive tension going to last?

“It’s going to be interesting,” Mr McHugh said. “Where heifers were in oversupply in this region over the past six months, now that steers are going to be so short, I’d expect heifers will be much more keenly sought-after, for live export, and as domestic feeders. Mating age heifers today are worth anywhere from 180-220c/kg in north Queensland, but that could rise considerably.”

“We’ve got quite a few options in front of us with heifers. Breeder replacements will be the next huge factor, as soon as it rains.”

 

 

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