The recent weakening in the A$, reaching a new three-month low yesterday of just above US101.4c, has stimulated movement on processor grids over recent days, with many moving up 5c/kg on earlier rates.
The A$ has also drifted lower against other currencies in recent days, hitting ¥80.18 and 78.11 Euros, helping lift competitiveness in Australian beef exports.
Some economists yesterday were again talking about reaching parity with the US$.
Westpac chief currency strategist Robert Rennie said the A$ had fallen dramatically on a combination of positive employment news from the US and worries about Australia’s terms of trade, following the surprise blow-out in Australia’s trade balance last week.
“There is a rising sense that the US is the one economy out there that is showing some signs of improvement, in what is a very difficult outlook for the global economy,” Mr Rennie said.
The US jobless rate unexpectedly dropped to 7.8pc in September, down from 8.1pc in August – the lowest level seen since President Barack Obama took office in January 2009.
In contrast, Australia’s trade balance in August swelled to more than $2 billion, from a revised $1.5b in July. The August figure was about three times the size expected, and showed surprising weakness in demand for commodities.
The impact on the A$ value, down about US3c since the end of September, has been seen in meatworks grid revisions in recent days. Two of the nation's largest processors have both adjusted grids for Queensland plants since last Thursday. A third has not yet moved, but that’s partly because it already has solid bookings two weeks ahead, and may fall into rhythm further ahead when it needs to.
Public quotes offered to Beef Central yesterday suggested best prices around for 0-2 tooth grassfed steers in southeast Queensland of 340c, four teeth 335c, six teeth 330c and best cow, 310c. MSA grassfed steer is currently around 350-360c, and EU steer, 375c.
There is now typically a 10c gap evident between grids for southeast and Central Queensland, with 0-2 tooth steers in Central areas of the state currently fetching around 330c.
Southern states grids this week displayed around 335c for 0-2 tooth steers, and 350c for MSA steer, suggesting much of the winter seasonal north/south price variation is now gone.
There is no shortage of cattle about, however, with some Queensland processors this week starting to pull back from saleyards sourcing, to concentrate on direct consignment supply. However there are some big yardings around in the saleyards system this week, with about 5000 head booked for Dalby, and big numbers in the south yesterday including 4000 head at Wagga and 2700 at Forbes.
Last week’s Eastern States weekly kill took an entirely predictable downturn due to the Monday Queen’s Jubilee public holiday, but some contacts were surprised by the extent of the reduction, given that quite a lot of plants operated regardless.
The total East Coast kill reached 118,103 head, a 14pc slide on the previous week.
Queensland was the worst affected, retracting 17pc on the previous week to 61,501 head.
NSW declined 14pc to 27,741 head, while Victoria eased 7pc to 17,743 head. South Australia was minus 5pc at 7991 head, while Tasmania was the least affected, falling only 3pc to 3127 head for the week.
The female proportion of the kill last week continued this year’s longer-term trend, representing just 28pc of slaughter cattle in Queensland – the only state where the data is recorded. Single site statistics on female kill reflect a similar trend. Nippon Oakey’s female kill this calendar year, for example, was described by staff as ‘significantly behind’ where it has sat in previous years.
The downside from the lower currency value, discussed above, is that customers in some importing countries often try to leverage off such movements as an excuse to lower bid prices for Australian beef. That has already occurred in countries like Japan, but the tendency is for the process to stabilise, as supply and demand again marry-up, if demand is secure enough.
As touched-on lightly last week, trade into Japan is increasingly being driven by uncertainty surrounding the issue of access for US beef above 20 months of age.
Even though the proposed date for implementation of any change from 20 to 30 months of age for US beef is not until mid-January next year, importers generally are taking a very cautious approach, for fear of being caught with inventory bought at earlier higher prices, should it occur sooner.
That is delivering a hand-to-mouth attitude among many buyers, and little enthusiasm for any forward purchases – particularly on frozen stock which can be kept for six months or more. The issue is being seen most acutely on offal items, exporters say.
One of the emerging influences in Japanese decisions, however, is Australia’s growing trade into alternate beef markets like China. As highlighted in Beef Central’s recent monthly summary of export shipments for September (see earlier article here), there has significant and encouraging volume growth recently into China, mostly for frozen items.
Japanese importers are certainly aware of this development, and if it continues, it may become a greater consideration in the way they approach bid offers for Australian product, some traders say.
In other export markets, imported beef prices into the US held a softer undertone last week with CIF values modestly lower compared to a week earlier. FOB prices in the US, for both East and West Coast delivery, were also modestly lower, pressured by lower prices for US domestic lean grinding material.
Trading volume in imported beef last week was relatively light, partly explained by some market participants travelling to Texas for the annual meeting of the Meat Importers Council of America.
Prices for domestic US 90CL boneless beef, fresh, were quoted at US$2.00/lb (weighted average), about the same as the previous week but almost 20c/lb lower than in early September.
Increases in domestic US cow slaughter have put some pressure on lean beef values.
Seasonally this is the case, as increases in product availability and the shift to holiday items tends to pressure ground beef prices lower. Still, US cow slaughter continues to run about 8pc below year-ago levels, largely due to a sharp decline in cow slaughter in the Southern Plains.
The weekly cow slaughter numbers are reported with a two week lag, but for the last four reported weeks, total US beef cow slaughter was 249,000 head, down 23pc from the same period a year ago.
Beef cow slaughter in the Southern Plains area that experienced exceptional drought conditions in 2011, are currently running almost 40pc below year-ago levels. There has been some improvement in moisture conditions in the Northern Plains and Midwest as well.
Also, wheat grazing in the US this year is expected to be about normal, analysts say. That will largely affect feeder cattle, with strong calf prices and high grain costs making it profitable to put light calves on wheat grazing programs this year.
Last year wheat grazing was more limited given the very dry conditions in Oklahoma and Kansas.
In its weekly report, Steiner Consulting says one of the main concerns for US cow-calf producers going into the winter months is the availability of hay. Hay stocks remain very tight and hay prices are at record high levels, Steiner says.
This will tend to push more cows to market this year. Still, the pace of the northern hemisphere Autumn cow run this year is likely to be slower than a year ago.
Dairy cow slaughter, on the other hand, has been running heavy and will continue to run heavy to year’s end. Milk prices have gained ground but high corn and hay prices will continue to pressure dairy margins. For the last four reported weeks, US dairy cow slaughter was 242,000 head, 11pc higher than a year ago.
Going into next year, demand will remain a key issue in the US grinding beef market, Steiner says.
At this point, the consultancy expects significant price inflation for lean grinding beef. Domestic lean beef should continue to trade at a significant premium to imported beef, although that premium should start to shrink as more end-users start including frozen imported beef in their formulations.
Presence of frozen lean imported grinding beef in the fresh US retail case continues to be very limited. This largely reflects the unwillingness of retailers to change their formulations after the LFTB episode.
Also, some market participants indicate that there are yield concerns (excessive purge) when using frozen imported beef in fresh domestic ground beef packages.
At the food service level, demand is expected to continue to improve as US unemployment levels start to move lower.
“It has been a very slow recovery but there are signs that the pace of economic recovery is improving,” Steiner’s weekly report said last week. “The latest tracking index of the US restaurant industry showed a notable improvement in August. It remains to be seen if the recovery will be sustained into the end of the year but the improvement is consistent with better numbers for job growth, industrial production, and manufacturing orders.”