World economy woes overshadow kill rates

Jon Condon, 09/08/2011

There were signs of rebuilding in meatworkskill rates this week and welcome relief in the form of a spectacular US9c decline in the value of the A$ – however the deteriorating level of confidence in the global economy is likely to be the big influence on throughput in the short term.

That was the feeling among a sample of export processors contacted by Beef Central yesterday afternoon.

The A$ yesterday fell to below US104c for the first time since April 5, after clipping US111c briefly during trading in late July, providing some cause for optimism among processors. This morning it opened at US101.68c. 

But where the currency trend goes from here is ‘anybody’s guess’ one senior export processor said yesterday, such was the state of confusion about the health of the global economy.

It was not yet clear what impact, if any, yesterday’s downgrade of the US credit rating by S&P will have on Australia’s trade with the US, or indeed other markets.

While there was a soft rise in processing rates across Eastern Australia last week, export processors have kept the handbrake firmly on slaughter rates across the nation since late June.

Monthly data released by MLA on Friday shows eastern states cattle slaughter for July was down 12pc compared with July 2010, and down 11pc in comparison with the five-year monthly average.

The negative trend was reported in almost every state, as a number of factors combined to restrict July turnoff. The main reason had been the slowdown in beef demand from export markets, but adding to this was the strength through July of the A$, which significantly eroded the competitiveness of Australian beef. This translated into processors demanding fewer cattle as they reduced operations, with a slightly cheaper price trend in the physical markets.

The supply of prime cattle tightened through July, providing another reason for some processors to undertake annual maintenance breaks, or operate at reduced capacity. This also resulted in a number of processors sourcing interstate cattle.

The NLRS slaughter report issued late yesterday for the weekly kill ended Friday, August 5 shows that trend continuing, with an adult kill figure of 124,552 head, a four percent rise on the previous week, but still low by historic standards.
Queensland’s kill lifted by 1pc from the previous week to 66,733, but was still 10pc below the same time last year.

A number of Queensland plants still only killed four days last week, but the flow of cattle was significantly improved from a week earlier, one processor said. Warwick Bacon, which processes a lot of grainfed cattle, will soon close for a fortnight due to mounting cost/price pressures, in a similar vein as Beef City did during July. Kilcoy, also grainfed dependent, is understood to have reduced from seven days to five day kills during August.

Slaughter rates in southern states were mixed last week. Numbers in NSW were up 4pc to 34,929 head (up 7pc on the same week last year), and Victoria improved 3pc to 16,096 head. Nippon’s Wingham plant reduced staffing levels last week to reflect the current circumstances.

Tasmania’s kill was down 15pc last week to 2764 adult cattle, while South Australia’s figure of 4030, represented an absurd 450pc increase on as week earlier, when the state’s two major export plants were closed for planned annual maintenance and refurbishment. Still in all, SA’s kills are still 38pc below this time last year.

Bigger kills ahead?

“Indications are there will be a bigger kill across eastern Australia this week, from what we have seen recently,” Teys Brothers general manager livestock, Geoff Teys said yesterday.

“There’s a few more cattle flowing than what there has been, from western Queensland, the northwest and other areas.  But certainly the world economy and the stock market are in turmoil and everyone is confused at present. Nobody knows what the currency movement will be, and our international customers don’t know whether to buy meat or hold-off,” he said.

“But when people are confused, the general trend is to slow-up a little. Consumers around the world still have to eat, but can they afford the price?” he asked.

Mr Teys said the earlier delays in killing cattle meant there would be some heavy cattle about, and some very good cattle. Comments issued yesterday by the Australian Lot Feeders Association regarding the latest quarterly survey ("Grainfed numbers show resilience") suggest there has been ‘increased’ retention rates’ of grainfed cattle as processors reduced weekly kills,’ however that can only occur for so long with grainfed stock at the end of their program.

Cash flow requirement is was also likely to be a consideration for grassfed producers, after a lengthy period with lower turnover in stock. In Queensland, at least, after a month of fairly stagnant direct consignment slaughter cattle prices, there has been a soft rise of about 5c/kg in many categories in the past couple of days, taking grainfed heavy steers to around 340c/kg.

It is way too early to link that firming to any currency movement, but it is more likely to be maintained while the A$ is a little easier. It may also be just enough to push some more cattle onto the market over coming weeks.

The big build-up of meat in cold storage as a result of the difficulty in selling product into sluggish Japanese and US export markets (see yesterday’s story "Indon only bright spot in flat July export result") is slowly starting to clear, but is still weighing heavily on the wholesale beef trade.

  • The Eastern Young Cattle Indicator closed yesterday at at 380.5c, up 8c on a week ago.


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