Processing

Weekly kill: Alarming swings being seen in imported lean beef markets

Jon Condon, December 10, 2019

WHAT goes up, must come down, the old saying goes, and the export beef industry is seeing it manifested in the most dramatic way this week, as lean manufacturing beef prices slump alarmingly, after an earlier period of equally dramatic rises.

Beef Central has reported earlier about the spectacular rises in 90CL imported beef prices into the US and China since late October, that saw prices climb by more than 150c/kg,  or almost 20 percent, over a four week period.

A large chunk of that dramatic surge in export cow meat prices has now been washed away, however, market participants told Beef Central this morning.

One exporter suggested for 90s that got to a peak around the 960s (measured in A$, CIF/kg) a few weeks ago, the trade was probably back to the 820s today, on a falling market.

If that trend persists, it could have a substantial effect on pricing for slaughter cows during the early stages of the 2020 slaughter season, when processors return to work in early-to-mid January.

Barring some sort of unlikely weather miracle where eastern Australia receives a Christmas/New year drenching, supply pressure with cows is only likely to pick up where it leaves off this year. New Zealand also enters its major cow cull during January, which could also help cap Australian slaughter cow prices early next year.

A trusted meat trade contact told Beef Central that the recent export price movements –both rises and falls – have been the most extreme seen since the Global Financial Crisis of 2007, and before that, the arrival of BSE in Japan and the US in the early 2000s.

The most recently-reported price plotted on Beef Central’s home page graph was posted by MLA last Thursday, suggesting a CIF price for 90CL imported into the US of 928c/kg – but market watchers say that is now well and truly out of date. Even the daily Urner Barry Yellow Sheet pricing report out of the US was struggling to keep up with the current savage downwards market movement, Beef Central was told.

The current price for 9OCL frozen was now back closer to where it started its rise a month ago, when it rose from US230c/lb to 310-320c/lb, having now settled back to at or below US260c/lb.

“The market has given back plenty this past week,” a trade contact said.

China has recently slowed down its purchasing activity on beef and other proteins, having filled its short term, if temporary hole. This had apparently tended to spook some traders who got in at the top of the market.

“In watching the China market start to retreat, the American buyers are now saying, we might just hold off a little now, to see where the market settles. It appears that the China trade just got too hot, too quickly. In the end, the American market was winning the race on trim, after the Chinese threw in the towel, and the US buyers probably now realise that,” the contact said.

Caught in the crossfire in the recent dramatic price rise were domestic Australian end-users like the large burger chains, and the likes of Woolworths and Coles, all seeking to secure large volumes of grinding beef for the high-demand summer grilling season.

One trade said such volatility in price was not good for anybody. “It’s horrible for buyers on the way up, and horrible for sellers on the way down,” he said. “It makes a real mess, overall, for stability of the market and people trying to plan production and pricing.”

For anybody with a three, six or twelve month contract, there was always going to be a loser under such conditions, he said.

“It’s been pretty messy this past week, but it’s just the sort of world we live in in modern times.”

While it was risky to make predictions about price trend in the current conditions, fundamentals around the demand out of China during the African Swine Fever epidemic had not changed, another trader said.

“The other aspect that has not changed is that there is still not enormous amounts of frozen lean going to the US. Yes, there has been a little more, recently, but the US grinders still want that frozen component to complement their domestic trim. There could be a little price standoff in that regard also, but they still need to buy some frozen Australian or NZ meat in the medium term.”

Southern grids show softer trend

While processor grid prices for slaughter cattle are becoming less distinct as the industry draws closer to Christmas plant closures, there has been some declines seen in offers in southern states this week.

As reported last week, a number of Queensland processors have now withdrawn offers for the remainder of 2019, satisfied that they have requirements covered in the lead up to seasonal closures, mostly around December 19.

Among Queensland processors still offering over the hooks quotes this morning, grids have stayed at 580c/kg on four-tooth grassfed heavy steers and 480c/kg on heavy cows (HGP-free cattle, with implanted animals 10c/kg less). The cow price is now back 40c/kg on its recent November highs.

In southern states, some grids declined 10c/kg on steers and cows on Thursday, as strong seasonal supply continues. For example, best quotes seen out of Wagga and Naracoorte this week were 535c/kg on four-tooth steer and 450c/kg on heavy cows.

Beef kills continue at extreme high levels

Eastern States beef kills showed no sign of end-of-season slowdown last week, with a five-state throughput figure of 160,118 head for the seven days ended Friday. That was a rise of 2pc on the week before, and represented the second highest weekly kill seen this year, as processors raced to accommodate as many drought turnoff cattle as possible before Christmas break.

Last week’s kill was 9pc higher than this same week last year.

Queensland accounted for 82,526 head last week, up by 10pc year-on-year as drought cattle numbers continue to push through the system, while NSW at 38,503 head was +9pc on last year.

Victorian numbers were 13pc higher than last year at 29,994 head; South Australia was down 28pc to 4078 head; and Tasmania was up 4pc to 5017 head.

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