SUPPLY chains dealing in Wagyu cattle and beef under forward contracts are coming under considerable pressure, given the dramatic decline in market value for F1 feeder cattle since December.
Quotes obtained on F1 heavy feeders in the southern Queensland market this morning were around 550c/kg on steers, and 500c/kg on heifers. Some isolated steer quotes closer to 600c have been reported, but those figures are again for long-term, committed suppliers only, apparently.
People outside the regular supplier networks are finding it much harder to find a home for F1 feeders at anything like those prices, with 500c/kg quoted by several supply chains.
Compare that with 950-1020c/kg being paid only five or six months ago, and it represents one of the most dramatic beef cattle price falls seen since the 1974-78 beef slump era.
The old saying, “The best way to cure high prices is high prices,” certainly applies here, because the market at its peak last year was generally recognised as artificially high, and unsustainable.
It appears that cattle producers who have been closely aligned with specific F1 Wagyu supply chains are getting access to offers, but others are being overlooked.
“Everyone (F1 supply chains) seem to be looking after their regulars, but others who are less committed are being disregarded,” one large program manager told Beef Central this morning.
“The back end of last year was a perfect storm,” he said.
“It didn’t matter how much money you had, you couldn’t buy as many F1s as we thought we needed. Our own grid got to 1020c/kg for F1s, but we heard of competitors paying 1100c/kg, liveweight, for heavy entry-weight cattle.”
“In our case we slowed up, and bought a few less cattle in the last half of last year. But with the benefit of hindsight, we should have bought none at all.”
This time last year, the same supply chain was paying 890-920/kg for F1 feeder steer, and still trending higher.
Breakeven on those cattle, exiting the feedlot this week after 360 days on feed, was probably $14-$15/kg carcase weight, he said. Feeder steers being bought this week at 550c/kg liveweight will need around $12-$13/kg carcase weight for breakeven when sold this time next year, he said.
Korean market disappears
One of the big triggers in the current state of affairs in the F1 market was a dramatic exit late last year from the Wagyu beef buying ranks from Korea.
Koreans love their marbled beef, and an estimated 30pc of Australian Wagyu beef exports were previously destined for the Korean market.
But the Korean domestic Hanwoo beef herd grew dramatically since 2020, and the national government was paying local producers to sell females for slaughter, to reduce numbers (almost 100pc of feedstuffs used in Korean beef production are imported). The government was also heavily promoting the consumption of Hanwoo beef to consumers for the same reasons.
That created a large beef glut in the market that has squeezed demand for Australian Wagyu – at a time when our Wagyu beef was dearer than highly-marbled domestic Hanwoo in Korea.
That 30pc of Australian Wagyu beef previously destined for Korea is now trying to find a home in other international markets, Beef Central was told – and many of those destinations are now, in turn, under economic pressure, with rising interest rates, inflation, energy costs and general cost of living increases.
“It’s put a hole in international demand for the timebeing,” one grainfed supply chain manager said.
“The flow-on impact has just rolled-on.”
He said because of the very long production cycle for Wagyu beef, there was still a long period of pain coming for supply chains feeding cattle today that had been bought earlier as feeders at close to twice the price.
“It won’t be until this time next year that the impact of recent F1 feeder price adjustments are reflected in the profitability of Australian F1 beef in the international market,” he said.
“All these Wagyu markets are under massive pressure in terms of price. It’s excessively high-priced product at a time of slowing economies and consumer pull-back.”
Live export market grinds to a halt
Several large Darling Downs Wagyu grainfed supply chains said they were being offered ‘non-committed’ F1 cattle over the past week, but they were predominantly lighter descriptions more like those exported live to Japan, rather than heavy feedlot-ready F1s.
That adds up, as there has been no monthly live export trade in F1s out of Australia to Japan since December.
Longer term, volumes of live export cattle into Japan have averaged around 16,000 head annually, however numbers declined sharply in the last six months of 2022, with only about 9000 shipped for calendar 2022.
No shipments have been made at all out of the Port of Brisbane so far in 2023, due to price resistance from buyers.
Live exporters involved in that trade said there had been no reneging on contracts on those cattle, but did concede that alternate homes had had to be found for many of those stock.
“There are plenty of people now trying to sell those light F1s that were originally destined to go on the boat,” one large feedlot livestock manager said this morning.
When quizzed by Beef Central, two live exporters involved in the Japanese trade said the developments did not represent reneging on contracts, despite the massive cattle price adjustments that had been seen.
“Ultimately we have an in-principle agreement with our suppliers, but nothing is forward contracted, price-wise,” one contact said.
He said alternative arrangements had had to be made on light F1s that otherwise would have gone on a boat since January, however.
“But there’s no doubt that we will be tidying up our supply base to be where it has to be,” he said.
“There’s certainly been no changing in business, non-execution or pulling out,” the spokesman said. “There’s no reneging going on – it’s a shuffle of relationships for cattle to other homes in domestic F1 supply chains.”
There is talk this week of defaults occurring in contracts offered by a southern Australian Wagyu domestic supply chain which had put bulls out for calves at a written forward-price buy-back, which had since told breeders it would not be going ahead. Beef Central has been unable to confirm it.
Importance of supply alliances
The importance of close supply alliances between F1 breeders and their preferred supply chain is being brought home again in the present market conditions.
“There’s people breeding F1s that had no alliance with anybody, but are still chasing the top dollar,” another supply chain manager said.
“We’ve gone from a short-supply situation last year due to the drought hangover, to a bit of an oversupply situation this year.
“But some of these guys have chased the last penny, all the way through, with no alliance to any particular brand. That works when the market is under-supplied, but suddenly the buyers are in a position where they can say no, we don’t need them, and we service our loyal suppliers first.”
Asked whether the Wagyu industry is again heading into another “2016-17 situation” where there was gross oversupply of feeders due to breeder speculators moving in from the Angus industry, he said he did not think it was as extreme this year.
“We’ll need solid supply in future, but the market has probably changed compared with what it was. The fundamentals are slightly different this time.”
“The one-off speculators who may have bred a few F1s this year for the first time, attracted by last year’s record prices, will drop out again, as quickly as they came in.
“But ultimately, most people who are in the F1 program as a supplier want to stay in it, regardless of what’s happened to prices this year. Buyers, lotfeeders and exporters of F1 beef are the same – we just have to negotiate this next eight to ten months of very difficult trading conditions.”
“It’s certainly not as if Wagyu beef supply chains are now making money, just because they are now buying feeder cattle a lot cheaper. That’s still a long, long way off – and its important for beef customers in China, Singapore or the Middle East to clearly understand that.”
Many people were warning of this over the past five years, i wouldn’t call it a price adjustment but more of a price correction. I think we should consider this price to be the new normal and there may even be further to fall to reach the correct point.