Supply pendulum swinging back towards producers’ favour: McRae

James Nason, 31/03/2014

The pendulum of supply is set to swing away from the processors’ favour and back towards producers at some point in 2014, and that turning point may already have arrived, Meat & Livestock Australia’s chief economist Tim McRae told last Friday’s Northern Territory Cattlemen’s Association annual conference in Darwin.

With demand for boxed beef and live cattle at “fantastic levels”, and drought continuing to impact heavily on production, Mr McRae says the Australian cattle market is on the cusp of swinging from an oversupply to undersupply situation, which in turn should boost prices for producers. 

Mr McRae told the conference that 2013 began with the Australian cattle herd at a 30-year high of 29 million head.

However, thanks to strong export demand, boosted by a rapidly growing Chinese market, Australia processed or exported almost 10 million head of cattle in the same year.

“You have to pay the price for that sooner or later,” Mr McCrae said.

“For the producers in the room that is probably going to put a smile on your face, because in the coming years there is going to be a shortfall of cattle… (and) the response in the price of the slaughter market is going to be pretty quick.”

Export demand was such that, even though Australia killed more cattle last year than in any of the previous 34 years, all of that additional production was sold, leaving no inventory building up or sitting on docks waiting for markets.

On the supply front, the severe drought that has gripped Queensland and New South Wales in particular in the past 18 months has caused a significant contraction in available numbers.

Taking into account for the impact of record slaughter numbers and beef exports, a return to high-volume live exports, and the impact of drought on cattle deaths and poor branding rates since 2012, Mr McRae said it was clear a real shortage was looming.

In his estimation, drought has been responsible for Australia putting 2.5 million less calves on the ground than it otherwise would have with prevailing breeding numbers in the past two years.

That equates to a looming 12-15pc reduction in total slaughter and beef production.

But when will the supply pendulum swing from a situation where processors are fighting to get through the big influx of cattle still coming forward to a situation where they are again fighting for cattle?

Mr McRae believes we may have just seen the first signs of that happening in the past week.

“Maybe we have just seen that pendulum start to move, in the last few days we’ve seen and 8-10pc increase in cattle prices through the major cattle selling centres in the south,” he told last Friday’s conference.

“Certainly we’ve seen some very good falls for Queensland, hopefully there is more to come, hopefully we see a wet April through those areas, particularly for those producers coping with drought conditions.

“If we’re looking where the real engine room of the cattle industry is, central and western Queensland, we’d love to see some more rain through the western areas, we think it may come, but I think we may have just seen with these recent falls the supply pendulum just start to swing away from the processors, and back into the favour of the producers.”

Following last week’s rain, the Eastern Young Cattle Indicator today stands at 330c/kg, 28c higher than last Monday.


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