Processing

Weekly kill: Grids continue to slide, as FMD risk starts to come into producers’ calculations

Jon Condon, 19/07/2022

THE looming FMD risk to the Australian beef industry is clearly coming into producers’ consciousness, as many look to unload surplus cattle to avoid being caught with a commodity where prices could change dramatically overnight, in the event of a disease detection.

Feedback from multiple beef processor livestock buyers this week suggests that many cattle suppliers are now raising the topic of FMD risk in conversation, and are beginning to factor it into their cattle inventory management decisions.

“You only have the read Beef Central to see the level of disquiet that the FMD threat is creating across the industry,” one processor said.

“It is certainly in some cattle producers’ minds now, as they make selling decisions. Nobody would want to be left with surplus cattle in the paddock, in the event of a disease detection. It is playing on some peoples’ minds, and we are now being asked about it constantly, by clients.”

“It’s not panic, but just a precautionary measure, from what we are seeing,” he said.

“From what we hear, people in southern states appear particularly worried, Don’t ask me why. They are wanting questions answered, but we, as processors, have no better knowledge of the circumstances than anybody else. We are governed by what the government rules, and that is now becoming more clear.”

Today’s Roma store sale yarded around 10,500 head, ranking it among the biggest weekly offerings  seen this year. Some of that may be catch-up after a series of smaller rain-impacted sales, together with a sense that the store market is now slipping, prompting vendors to market cattle before the drift gets too severe. But FMD wariness many also be a factor, one agency source said.

“Anybody who has cattle to sell, whether it be stores or fats, is probably now taking as bit of a hedging position against the FMD,” the contact said.

“This way, if something bad was to happen, then at least they have sold something. Nobody would want to be in a position of having surplus cattle around them, should it arrive. But panic selling needs to be avoided, at all costs.”

In one sense, most Australian beef producers have in the past 18 months built up a cash reserve due to record high cattle prices, that would leave them in a better position to survive a major industry melt-down if FMD was to arrive.

While the slaughter cattle market in eastern Australia was clearly on the way down before FMD risk came into calculations, it is clearly now adding to the decision-making process.

Downwards grid trend continues

While some large beef processors have suspended their grid offers for the timebeing – confident that they have kill slots covered for the next four to six weeks – others have dropped their offers again in the past couple of days.

One large multi-site Queensland processor has heavy cow offers now at 650c/kg, down 30c/kg on the previous week; and heavy four-tooth export grass steer 700c, also down another 30-35c.

The same company’s rates only eight weeks ago sat 70-80c/kg higher on the same cattle.

Some eastern states processors are now as far forward on bookings as they have been since 2021. That’s not particularly uncommon in July, but several processors said the start of the new financial year had triggered a lift in supply, as producers avoided an additional tax burden by selling more cattle late in the last financial year.

Another large multi-site Queensland processor which is not currently offering quotes due to the current supply situation said his business would consider its price position again at the end of this week.

There’s currently a lot of meat circulating around the domestic Australian market, in the face of a very flat international beef trading conditions. As described earlier, drought in the US is forcing a sharp rise in cow slaughter, pushing a lot of US surplus beef into the international market, to Australia’s disadvantage.

Chronic low rates of kill in Australia have been a feature throughout the first half of 2022, for a range of reasons: labour access, COVID and everyday flu sickness rates among staff, and the underlying shortage of cattle among them.

Two very large Queensland beef plants have reported a sharp rise in COVID and everyday flu this week, further limiting ability to process cattle, and hence demand for stock. Sickness, alone, was accounting for a 50-100 head decline in daily kill at one large beef plant this week.

Kills continue sub-100,000 head

Last week’s seven-day national kill to Friday continued to track below 100,000 head, as it has throughout the first half of 2022.

Throughput past week reached 98,755 head, up 2.3pc on the week before.

The question now being asked is, how long can such low throughput continue, blighted by labour and sickness challenges, before an oversupply of cattle emerges?

The 30,000 head currently ‘not being killed’ each week across Australia, compared with a normal year, represents a ‘very big breeder paddock’. Over a yearly cycle, that number accumulates into around 1.5 million head. At this rate, cattle numbers may well be back to close to pre-drought levels some time next year.

There has been a small upwards trend in the proportion of females in the adult cattle kill over the past eight weeks. The female ratio last week reached 43.3pc of the total, but still well short of the 47pc trigger-point signalling the balance between herd building and herd reduction.

Queensland’s kill broke the 50,000 head mark for only the fifth time this year, reaching 50,444 head, up 3.3pc on the previous week. Numbers are now similar to what they were this time last year, when the full effect of earlier herd liquidation and better than average seasonal conditions was taking effect.

The NSW kill last week reached 26,117 head, up about 2pc on the previous week, while Victoria’s kill is still impacted by mid-winter conditions, at 12,480 head, much the same as the previous week. South Australia accounted for 2813 head in last week’s operations, the same as the previous week; Western Australia processed 2483 head; and Tasmania, 4418 head.

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