Richard Koch, Elders

Richard Koch is an economist working with Elders. His regional cattle markets wrap follows a weekly hook-up with Elders livestock managers across the country.

READING some headlines on the future of cattle prices from a well-noted analyst in one of my regular subscriptions, I couldn’t help but shake my head.

“The EYCI is likely to reach record levels in December this year,” he said. Well they might, and hopefully they do …. but making bold predictions like this without acknowledging the downside risks is not really analysis…. it is like cheerleading.

You only need to read the first page of Expana’s (hashtag#JunieLin) excellent Asia-Pacific beef report this week to see that global beef prices are falling. Just read some of the quotes…..

• “Shipments to China constrained: as safeguard quota reaches 90%, this market is expected to shut to Australian beef within days”
• “Trade to Japan remained sluggish as they watch the narrowing China safeguard window”
• “Outbound sales pace to the US softened” – on uncertainty surrounding Trump’s 12.5pc tariff proposal, ongoing screwworm detections in Texas, high inventories (with Memorial Day sales slow), sustained competition from lower priced Brazilian supply (Brazilian 90CL cow beef down 20USc/lb this month to 333USc/lb vs Aust at 380USc/lb , down about 10c/lb this month)

US fast food restaurants (that is our major segment) are being hard hit by falling sales to low-income consumers. After the US Memorial Day holiday, inventories were noted as “lingering.”

Trade activity across SEA remained largely inactive, awaiting lower-priced opportunities once Australia’s China & Korea quotas are filled.”

Our 100-day grainfed beef forward contract is $8.60c/kg dw for September, it has hardly budged this year despite cattle and grain prices getting dearer, feedlot margins are getting squeezed.

Southern processors pushed cow prices above $4/kg lw in north QLD this week, add the freight and other cost and they are bloody expensive cows. Beef prices have fallen since last year so processing margins are getting squeezed. Me thinks they were short on pre-existing contracts and when they must renegotiate in an environment of easing demand prices and increased Brazilian competition they won’t be buying too many cows from North QLD.

This chart shows the 90CL export beef price vs the national saleyard processor cow indicator and the margin between the two. Generally, they track together, but in the past month they have moved in opposite directions indicating processing margins are tightening. Normally a tightening in the margin precedes a fall in cow values.

Opposite directions

In my experience, beef prices and cattle prices don’t move in opposite directions for too long.

As a trained economist, you are taught to consider both upside and downside price risks and present both sides of the story without bias and allow people to make informed decisions with all the facts.

Anyway, this is what I heard from Elders agents around the traps this week:

Live export:

Private and physical markets out of Townsville strengthened in line with what’s happening further south. In comparison to QLD slaughter, feeder and restocker markets, the live export sector has been relatively stable with seasonal pressure from the number of cattle coming off stations throughout the Kimberly/NT.

Western QLD cattle that often supplement live cattle export supply are now being turned around and are headed for southern feeder and slaughter markets. Paddocks deals in north QLD on 350-400kg heifers are being made at $3.50/kg but they are making $3.60/kg in the yards. Southern processors were active at Charter Towers buying slaughter weight bullocks/cows/heavy feeders, chasing anything with weight.

Central and southern QLD:

In CQ and southern QLD, flatback feeders suitable for the 100-day grain fed job were $5/kg delivered Moura which makes them $5.10-5.20/kg Downs, so up 20c/kg for the week. The September 100 day forward contract price hasn’t risen in line with feeder steers and is $8.60/kg dw for Sept (meaning feedlot margins are tightening).

There was plenty of southern competition at Clermont, on cows one southern processor started at $3.80 but another southerner went over the top to $4/kg.

The CQ weaner sale season kicked off at Emerald with cattle going to the Downs, Clermont and south-east (restocking numbers). Plenty of steers going for $5.20-5.30/kg with some light and pretty cattle up to $6/kg. Heifers just in the $4’s/kg

The Gracemere weaner sale last Monday had just under 6000 head and in a good quality offering the best-bred lines sold strongly – supported by regular local and outside buyers who gather each year.

Flatback & Euro X weaner steers made to 596c/kg, best-bred lots 502c/kg to 585c/kg, similar heifers to 434c/kg with the best pens avg 380c to 428c/kg. Well-bred Brahman weaner heifers sold close to the best of the FB. EU accredited steers attracted extra attention from fatteners. Yearling steers reached a 585c/kg high to avg 523c to 572c/kg with Brahman yearlings steers 470c to 511c/kg. Best-bred euro and British cross heifers sold to return averages from 414c to 447c/kg selling to backgrounders mostly. Feeder steers avg 452c to 503c/kg with Brahman feeder weights on the bottom of those averages. Feeder weight heifers were shared by restockers and feedlots to average 369c to 442c/kg.

NSW:

In NSW, the slaughter market is fully firm with bullocks $8.50/kg dw, cows $8.20/kg dw, program supermarket cattle $9-9.40/kg. With more rain forecast the problem will be sourcing cattle of suitable weight cattle. Angus feeders $5.60-5.80/kg lw, up another 40c/kg, apparently being driven by feedlots buying to have cattle on feed for 150 days to be ready for killing for China around November. Best paddock quotes I heard yesterday was for 400-500kg Angus steers around $6/kg from several points.

Victoria, Riverina:

Down in Victoria and the Riverina of NSW if a line is drawn east of the Newell Highway from Hamilton in Vic to Dubbo, the season is exceptional with excellent lambing percentages you could expect Spring calving rates will be strong. With cattle prices in sight of historic highs, the message is to look after your breeders.

WA:

Our head of livestock was in WA last week, in the Gascoyne which is semi-arid pastoral country where conditions are dire. No sheep left and cows not fit to load, a small patch of WA but probably the size of Victoria. Most of the rest of WA in great shape with more rain forecast this week, even the Gascoyne regions is forecast to get some.

Our agent on the way to Katanning saleyard this week reported that rain has lifted the WA store cattle market, which kicked 20-30c/kg with even little pastoral steers and heifers at Muchea 180-240kgs up 80c/kg. Slaughter market is firm at $7.40c/kg dw for cows and yearling steers $8.50/kg dw.

Tasmania:

Things are good in Tassie with rain of 20-100mm hitting all the areas where it was needed (midlands, south coats, south-east). With more rain in the forecast dams will be filled creeks flowing again setting Tassie up for a good Spring.

Program yearlings $8.60-8.70/kg dw, cows $7/kg dw which is below the mainland. But the rain and outlook gave the store cattle job the heave-ho 20-60c/kg dearer, heavier steers $5.20-5.30/kg, 300-400kgs $5.20-5.50/kg, light steers $5.40-6.20/kg. Store heifers all weights $4.20-4.80/kg, up 40-50c/kg. Job is rocking and rolling on light numbers.

In the words of Elders national livestock manager, Peter Homann “let’s keep talking”.

Also let this stat sink in…….While US farm acreage has not grown this century, Brazil’s has soared about 50pc, making it an agricultural powerhouse.