A ‘PERFECT STORM’ involving both supply and demand factors has produced a dramatic collapse in Wagyu feeder cattle prices this year.

Wagyu F1 feeders out of good Angus dams that were capturing headlines a year ago trading at around 1000c/kg ($10) liveweight and more, are currently making anywhere from 380c to 400c/kg, Beef Central is told. Their F1 heifer sisters are making around 350c or less.

Lotfeeder demand, however – even at those prices – is described as ‘very flat,’ and limited to select ‘proven’ F1 suppliers with long-term relationships only.

Beef Central noted the slipping trend in Wagyu feeder pricing in this article back in April, which quoted prices at the time for F1 steers still in the high 500s or low 600s.  The market has slumped another 200c/kg since then.

While the 12-month price fall of 600-650c/kg liveweight looks dramatic, in real terms the percentage decline of around 60-65pc over the past year is in fact not that far removed from what’s happened for Angus feeders, or flatback feeders going into 100-day programs.

For example the NLRS feeder steer indicator, sitting this week at 221c/kg, was this time last year at 522c/kg. That 301c/kg drop in 12 months equates to a 58pc decline in value in 12 months.

Similarly, for the Eastern Young Cattle Indicator (all saleyard cattle 200-400kg, dressed weight equivalent), yesterday’s number of 353c/kg dressed was down 732c or 70pc on the same time last year.

In comparison, one supply chain was quoting heavy Angus feeders 500kg at 220c ex Darling Downs this week. The same steers might have made 600c at the market peak last year.

Despite those comparisons, it’s hard to ignore any market segment where cattle have lost 600-650c/kg liveweight in value (the equivalent of $2400-$2600 a head) in 12 months.

Higher content cattle faring better

What’s also evident is that higher-grade Wagyu feeders (Purebred or Fullblood) have not fared so badly. Quotes obtained by Beef Central this morning suggest Fullblood Wagyu feeder steers (representing only a minor sub-set of all Wagyu on feed) are still fetching around 650c/kg and purebreds, perhaps 600c/kg. However other offers may be more like 500c/kg.

Fullblood feeders were making $11-$12/kg a year ago, suggesting their value loss, while still significant, has not been as heavily impacted as F1s this year.

Only a handful of Wagyu feeders are sold via the saleyards system or on Auctions Plus, meaning market trends for Wagyu feeder cattle can only really be captured by picking up the phone to supply chains and asking questions about their paddock offers.

What’s also clearly evident is that there are Wagyu F1 feeders out there at present that are struggling to find a home at all.

“There’s simply more F1 feeder cattle available this year than there are homes for – maybe a lot more,” one large Darling Downs lotfeeder told Beef Central last night.

Several supply chains said they had fielded calls from F1 breeders who were looking to sell F1s where they could, having been told on short-notice their cattle weren’t needed for supply chains they had been part of for years.

Most, if not all of these supply agreements were not formal contracts, but ‘handshake’ deals, meaning the feedlots were under no legal obligation to take them, apparently.

Some yards may have in fact stopped Wagyu feeder intake altogether for a period, while for others, it’s been a decline in placements rather than a complete halt, Beef Central was told.

Perfect storm emerges

One veteran Wagyu supply chain manager described the circumstances for F1 cattle in 2023 as a ‘perfect storm.’

He said the Wagyu industry had witnessed four or five such imbalance episodes since it had started to gain momentum in Australia in the early 2000s. The Global Financial Crisis around 2007-08 was just one of those, when consumer spending on eating out and costly Wagyu steaks evaporated, leaving a glut of expensive beef on the market.

Again around 2018-19, an extreme over-supply of Wagyu feeders emerged, when non-traditional breeders swung into F1 breeding programs, lured by high prices during the preceding year or two.

Supply side and demand side pressures

It appears the Wagyu industry is currently being buffeted from both the supply side and demand side of the equation.

On the supply side, the drought conditions being experienced across large parts of eastern Australia have certainly pushed more F1 feeders to market. Under normal conditions, many would have been retained to heavier weights 450kg and more before being sold to lotfeeders.

But on top of that, there’s been a lot of opportunistic breeding of F1 cattle over the past two years, motivated strongly by earlier record high prices. Many of those were bred without a secure end-destination in place, Beef Central was told.

How many of those cattle exist is impossible to estimate, but at some point they have to try to find a home in the current highly-stressed market complex.

The final supply-side factor in the ‘perfect storm’ has been the general lack of processing capacity due to labour issues that is plaguing Australian processing this year.

Demand side

In terms of market demand for Wagyu beef, last year (when breeding decisions were being made around this year’s calf crop) there was worldwide demand for Wagyu meat (described as ‘insatiable’ by the manager of one large F1 supply chain).

Part of that was driven by post-COVID euphoria, when everybody wanted to get out to dine again, and catch up after a year or two in lockdown.

“Every man and his dog (referencing so called ‘second tier’ Australian supply chains) were selling Wagyu beef last year,” one prominent trader said.

This year, all beef sales have been impacted by economic slow-downs, rising cost of living and energy bills, and general cautionary spending by consumers across the world.

The trade contact said in broad terms, there had been a 10pc decline each quarter this year in Wagyu export beef pricing, suggesting it has fallen about 40pc since December.

Beef stocks (bought at earlier higher prices) have built up to alarming levels in markets like Japan, Korea, China and elsewhere, putting further pressure on prices. Some overseas Wagyu customers have sought extension on payment terms from their Australian suppliers, due to slow trade, Beef Central was told.

China is identified as being particularly tough this year for Wagyu sales. That has in turn pushed more Australian Wagyu production into other markets.

But even ‘reliable’ markets like Korea have gone very quiet, partly due to a large government-driven sell-down of domestic Hanwoo cattle (which produce marbled beef not unlike Wagyu). One Australian Wagyu supply chain said it was only sending 15pc of the Wagyu beef to Korea it did this time last year, due to the domestic Hanwoo sell-down, designed to curb inflation.

The Japanese economy is also showing signs of stress, with the Yen falling dramatically in value in recent months.

The US market is one of the few bright lights for Wagyu sales, market participants say.

Some would argue that Wagyu, being a premium product with a premium price, is even more exposed to the current consumer sentiment – especially in the food service/restaurant sector. However there is no real evidence that Wagyu beef is ‘over-represented’ in international beef stocks in cold storage, one contact said.

Lots of theories abound in the current export market environment. One of these is that China two or three years ago convinced the Wagyu industry in Japan that it was poised to import much larger volumes of Japanese-produced Wagyu beef, encouraging Japanese breeders to build stock numbers. But when China ultimately reneged, it left an abundance of Japanese domestic Wagyu beef in cold storage in Japan, which may in turn be impacting Australian Wagyu opportunity.

Perhaps supporting this theory, Japan has pushed its own export Wagyu sales hard into regions like the Middle East and the US (and even Australia) over the past year or two. Click here to view an earlier story on Japanese Wagyu marketing efforts in Australia last year (see image below).

Long production cycles

Adding to the current challenge for Wagyu supply chains is the fact that production cycles for Wagyu beef are incredibly long – anywhere from 350 days to 500 days on feed, before the beef is produced.

It means F1 Wagyu beef being processed this week still bears the cost of the incredibly high feeder steer purchase costs from August-September last year. Add the current flat trading conditions and rising ration costs this year to that, and it means there is significant potential for large losses on each animal processed.

One company said it had feeders on its books bought back in early July, contracted for delivery to the feedlot later this month, that were probably 150c/kg dearer than what the same cattle would cost to buy today. They will still be on the company’s books until November 2024, given the feeding program in front of them.

One supply chain manager said it would not be until at least March next year before the production cost on F1 Wagyu beef started to show the impact of cheaper feeder steer and heifer prices that have unfolded this year.

“There’s still an awful lot of pain ahead for some supply chains,” he said. “But it won’t be until early 2025 that these sub-400c/kg F1 feeders go to slaughter.”

With the suspension or slow-down of intake of new Wagyu feeders recently, the overall number of Wagyu on feed in Australia was ‘inevitably lower’ now than it was six months ago, one contact said.

He suggested some yards had stopped putting normal numbers of Wagyu on feed back in April-May, but that the very long lag-time on Wagyu production was inevitably masking that in the market.

What becomes of surplus feeders?

For the large numbers of ‘unwanted’ F1 feeders currently sitting in the market, the question is, what becomes of them?

Some will likely get a ‘pill’ and go into 100-day programs, despite lower growth rate potential than conventional cattle in shortfeeding, one contact said. Some heifers may stay home and get finished on grass or crop, and be sold into the domestic trade. Still other F1s may end up in Angus brand programs, another contact said.

“If a good Angus heavy steer ex Downs is only worth 220c/kg this week, what does that price a Wagyu F1 at for a 100-day program, where growth performance is likely to be considerably less?” one contact said.

“Those surplus F1 steers and heifers are going to be very difficult to sell.”

Solutions for the future

Somewhat optimistically, one supply chain manager said he believed future Wagyu supply and feeder prices would never again get as ‘silly’ as they did during last year’s feeder price boom.

“As an industry, we need to be able to reduce our cost of production, because the more high quality Wagyu we produce, the more gets put on the market, which starts to disrupt price for a ‘special’ product like this,” he said.

“Everyone has a different strategy for how to reduce COP, but the most expensive part of the exercise is days on feed, and the feeder itself.

“In the early days, longer days on feed was simply about trying to hit those higher marbling scores. But today, we have better-performing Wagyu genetics, and better Angus females. It’s not uncommon to hear of F1 programs averaging marbling score 6 or better these days, across large runs of cattle. Five years ago, they were at least a score lower, on average.”

“There’s just more good (higher marbling score) meat being produced.”

One large Queensland yard said its F1 program had gone from average marbling scores of 4.7 a couple of years ago, to 6.7 today, through better genetics and management.