Both slaughter and young cattle prices are in free-fall this week as the market takes a serious check in response to sluggish international beef demand, particularly in North Asia, and the accumulated effect of a high and rising A$.

Meatworks grid prices in Queensland have in many examples now slipped 20-25c since last week’s Beef Central slaughter report, with quotes in southern Australia not far behind.

That’s the biggest correction seen since early last year, when prices retracted dramatically after flood supply pressures eased.

Saleyards prices across major eastern Australian selling centres also tumbled yesterday, in concert with recent grid price trends.  

Cattle producers can expect more of the same in coming weeks, unless there is a major cattle supply disruption caused by the current weather event sweeping across northern and eastern Australia (see this morning’s Weather Channel report).

In response to current market movements, the Eastern Young Cattle Indicator closed yesterday at 397c/kg, down a whopping 6.5c since Friday, and back 14.75c on this time last week.

Because of the significance of current price movements, Beef Central has partitioned today’s market summary, normally published as part of the weekly kill report, to appear as a separate article. The National Kill summary for last week appears this morning as a separate item.

The first of the big influences on recent price movements is extremely soft demand from buyers in North Asia, reinforced by a strengthening currency (the A$ is in the US105s this morning, after sitting around parity pre-Christmas).

A reliable exporter source yesterday said beef demand out of Korea, particularly, had almost dried up, reasons for which were still being clarified.

One suggestion is that the uncertainly surrounding Korea’s looming free trade agreement with the US, now due to take effect around March, is having an effect on local beef supply and price expectations. Recent attention has also focussed on the big drop in much-prized domestic Korean Hanwoo beef prices, and how this will inevitably put downward pressure on beef prices generally, to maintain historic price relativity between imported and local Hanwoo beef.

“A combination of those factors, plus the fact that imported beef inventory levels in both Korea and Japan were high at the end of the 2011 trading year, is certainly making for very tough going from an Australian export marketing point of view,” Beef Central’s contact said.

Demand in Japan, while “just OK”, was “certainly not something we are jumping up and down about,” he said.

The two markets (Japan/Korea) are also interrelated, in the sense that particularly for forequarter items, if Korea goes absent then the only other volume market to go to is Japan. As soon as the Japanese see an increase in offers to them from Australian exporters, the price quickly starts to retract, and that’s what’s occurring now.

“In the two other markets where product diverted from Korea can potentially go to – Russia and Indonesia – even though they are lower priced markets, they are still hampered by quota and permit issues. That’s not unusual in Russia at this time of year,” the exporter contact said.

While there is some prospect of the current set of demand drivers resolving itself fairly quickly, there is still a widely held view among processors that the slaughter cattle market late last year got “too high, too quickly,” and was predicated on a shortage of cattle in November/December.

The early opening of many plants this year didn’t help, with some attractive money being offered which did not produce much of a run of cattle – primarily because many producers earlier in January were sitting on a beach somewhere.

Another current influence on the cattle market is the larger than normal inventory of beef built up before Christmas by exporters and wholesalers, concerned about the prospects of a repeat of the January/February 2011 flood disruptions to cattle supply, which so far has not eventuated this summer.        

Grid quotes supplied by major exporters yesterday illustrated the current less-aggressive cattle buying mood. Teys grids in both Queensland and southern Australia were back 20c/kg to 25c/kg dressed weight compared with ten days ago, and JBS and Nippon were on par with that trend.

Southeast Queensland grids yesterday were typically 345c for best 0-2 tooth grassfed ox; 340c for 4-tooth; MSA steer 360c (down dramatically on a fortnight ago); EU steer 360c; and best cow 320c-330c. Some sites ceased quoting yesterday on some descriptions, particularly MSA, having requirements covered for this week (Thursday is a public holiday), and being in reasonable shape for kills next week.

Similar descriptions in the south, ex Wagga, were quoted yesterday at 335c for 0-2 tooth ox; 325c for 4-tooth; and 295c the cow. That 10-15c deficit in comparison with Queensland grid offers can be expected to narrow as the seasonal supply of slaughter cattle in the south starts to dry up in coming months.

Current hot, dry weather in the +35C range in some southern areas is only likely to maintain current numbers coming forward however, market sources suggested yesterday.

Rain this week, particularly in southern Queensland and northern and eastern parts of NSW where falls are likely to be heaviest, could put some floor in the cattle market later this week and next.

But as the industry moves into a higher turnoff period from late February/March, cattle prices could still come under further pressure, unless more weather disruptions occur, the A$ softens substantially, or both.

Sums done last week on Beef Central suggested processors needed at least 25-30c price relief on earlier cattle price rates to get close to breakeven on grassfed ox.  

In other major export beef markets, there was a little improvement in US imported beef prices last week, but these are still well short of record levels for grinding meat seen towards the end of 2011.

US imported beef prices were higher last week on more active trading on the part of some US end-users, and generally higher offering prices from Australian and New Zealand suppliers in response to currency movements.

Market participants indicated trading was more active earlier in the week but as prices continued to climb, end-users took a step back and markets were for the most part quiet by Thursday. Most of the activity in the market was on the lean side, with prices for 95CL and 90CL beef trim trading as much as US2c/lb (4.4c/kg) higher than the previous week.

Higher prices for domestic product as well as a stronger Australian and NZ currency clearly played a role, US analysts said. Fat trim values were steady to lower. Market participants indicated better offerings of fat trim from Australia as Asian markets did not appear to be as active as they were in late 2011.

• Pay another visit to Beef Central later today for more analysis on yesterday's MLA's 2012 Industry Projections.