Export diversion pressure looms in domestic beef market

Jon Condon, 27/02/2012


Early signs of diversion of beef out of export market channels back into the domestic trade are being seen, according to Beef Central’s regular wholesaler contacts.

Apart from grinding beef exports, which are performing strongly (the US alone is likely to take close to 17,000 tonnes in January, analysts say), muscle cut exports remain listless, with limited demand out of key markets like Japan and Korea exacerbated by the value of the A$, persistently above US106c since late January.

With the steady rise in rates of kill over the last few weeks it was only a matter of time before supply pressure started to appear in the domestic wholesale market, and key players say some (albeit, moderate) evidence of it started to emerge in the past fortnight.

One of Australia’s largest wholesalers started to take positions on beef last week, in an effort to avoid being caught with earlier, more expensive inventory as prices show signs of easing.

“If someone puts their hand up for product and are around the money, we’re breaking their hand off,” a reliable trade contact told Beef Central late on Friday.

“We might see a little bit of grace, in terms of wholesale price movements between now and this side of Easter, but look out after that,” the wholesaler said.

His advice in coming weeks was to ‘stay lean, sell-short, and worry about it later’ rather than getting caught with more expensive stock.

Other larger wholesalers contacted on Friday also appear to be working to tidy-up their inventories, and are working on very current meat. Some said they were inclined to get out as far as they could, forward-sold.

“If anybody wants to put a special on for rumps, cubes or strips, going forward, we send them straight away and worry about it later on,” one said.   

Some ‘very large’ placements of ‘A’ cipher (export type) tenderloins are known to have been placed with southern portion cutters last week, at attractive prices.

The sobering thought is that larger seasonal weekly kills have not yet kicked-in in Queensland, where last week’s tally of 64,734 head is still some way off a busy week, closer to 75,000 head.

Biggest price pressure is being seen on 100-day ‘generic’ (unbranded) beef prices, several wholesalers said. Commercially-branded and better quality product was not yet being impacted the same way.

Export 100-day cube-rolls are softening, with one contact calling a decline from $16.50 to $15/kg in the past fortnight. A bid of $14.50 would probably secure 100-day generic cubes this week, particularly for volume.

Another large wholesaler doing business in the three eastern states quoted declines of $2/kg on 100-day cubes this morning, down 10-15pc on recent earlier rates in places, being $19 only three weeks ago. 

He said budget tenderloins were currently hard to shift, partly because February was always a month where there was little function/catering activity to underpin demand. Rumps are holding a tidy position, due to higher demand, although wholesaler margins on rumps are being cut to the bone in some cases, to guarantee turnover. Striploins were also proving harder to move.

The current, ‘still gentle’ movement of export beef back onto the local market was being exacerbated by generally flat demand in the domestic trade; February being a traditionally slow month at retail; and price-competitive protein options like chicken. Even lamb prices had eased substantially, which would be taking some share away from beef. 

While major supermarkets were reporting higher turnover in meats sales since January, other segments of retail were reporting flat trading conditions. 

Another factor was the well-known phenomenon where consumers tend to take a cautious approach to household expenditure during times of political turmoil, or looming elections (Queensland). Lastly, weather has not been conducive to barbecue season this summer.

Grinding meat ‘salvation’

The current position also serves to highlight just how strong the grinding beef market is at present, both for export and domestic, which in many ways was ‘masking’ a much more serious trading position.

“There was basically $4/kg for 85CL grinding beef last week, while 90CL was closer to $4.50/kg,” Beef Central’s wholesaler contact said.

He agreed that a lot more whole primals were going into the grinder, as a result, as reported on Beef Central last Tuesday

“There’s a cut-off point: unless you are putting the best part of $4.80/kg into a topside, a knuckle, a blade or other lean cuts like chuck tenders, you are better off at the moment putting the knife around them and slipping them into a 95CL pack, worth upwards of  $4.50-$4.60/kg, even on the domestic market,” he said.

“Alternatively, those very lean cuts can be used to lift 75CL trim up to 85CL, attracting a higher price.”

“You would do the same with a clod, if you couldn’t get $4.20/kg in the market or more. The beauty is those lean cuts like chucks and blades add up to about 28 percent of the carcase weight, so they can have a big impact on overall carcase value.”

“I’d hate to think how flat the overall market would be at present if it was not for the strength in the grinding beef segment. It’s a salvation, providing a priceless back-stop. Without it, cattle could easily be worth 20c-30c/kg less at farmgate,” he said.

“McDonalds and their like are having a strong time during the current tight financial climate, around the world. They are counter-cyclical to everybody else.” 

MLA analyst Tim McRae said it often took some weeks for diversion of beef out of export markets to be manifested on domestic market prices. In terms of matching supply with demand, much would depend on the size of Queensland kills over the next couple of months.

While these were currently hovering in the mid-60s,they could be impacted by upcoming forecasts of wet weather (see this morning's companion article, "Central and Southeast Australia in for a drenching"), which could moderate any excess.

The need for cash flow among producers and normal seasonal turnoff was likely to see Queensland kills grow, barring weather disruptions, he said.


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