Processing

Grid prices surge again, as processors battle to fill kill rosters

Jon Condon, 15/09/2015

AS crazy as it might sound, price appears to be having little real influence on processors’ slaughter cattle throughput across Eastern Australia at present.

Grid offers across southern Queensland and northern NSW surged again last week, taking slaughter cattle prices deeper into uncharted territory. One processor lifted grid offers by 20c/kg in a single jump last week, to try to shore-up an increasingly hard-to-find slaughter supply. Others have lifted 10-15c this week, alone.

MSA grading 3 - CopyWe’ve seen southern Queensland and northern NSW grid offers in the past 24 hours that have best heavy cows at a phenomenal 520-525c/kg, and heavy grassfed steer 0-2 teeth 550c. For the specialist lines, EU grassfed steer recently cracked through the 600c/kg barrier, and now sits at 610c; MSA grass 0-2 tooth steer are trading in a band from 555c to 585c; and PCAS grassfed steer at 625c.

It’s worth pausing for a moment to put those prices into some context:

  • A typical 260kg cow at 525c this week is worth $1365. This time last year, she was priced at the same SEQ plant at 360c ($936 a head). That’s a 46pc rise since.
  • A typical 330kg grassfed Jap ox, two-teeth, at 550c is worth $1815 a head this week. This time a year ago, he was worth 385c ($1270). That’s a 43pc rise since.

Worth noting is that both those quotes from last year were already on the rise, and were a long way from the bottom of the market.

What’s now evident is that there is a distinct, finite limit to available cattle at present, despite the huge money on offer.

“The rates are already at all-time records, but you could put them up another 50c/kg tomorrow, and you simply wouldn’t get any more numbers for next week’s kill,” a contact said this morning.

“The problem is, as the old saying goes, You can only kill ‘em once,” he said.

While there was a 3 percent rise in last week’s Eastern States beef kill reported by NLRS, and a 4pc rise in Queensland, that was due more to weather and other earlier supply factors, rather than price, Beef Central was told. Last week’s five-state kill reached 156,994 head, about 4000 up on the week previous.

One processor livestock buyer said the incredible prices on offer were not transferring into a heap of bookings, but “just enough to get by.” It’s a long way from circumstances back in March/April, when many northern processors had 8-10 weeks of slots booked in front of them. Current pricing appears to be more about defending market share against other processors, than lifting overall cattle supply.

Some processors have so far maintained normal weekly shift rosters, but others have now started to fold – with a slew of large export plants from Victoria all the way into Queensland, scheduling four-day kills this week, and likely to continue next week also.

The longer term-trend in slaughter numbers remains down, and that is now likely to continue through to season’s end in December. October and November and now shaping up as very difficult procurement periods, and the arrival of any widespread spring rain will only make that job harder. Early season closures in December cannot be ruled-out, especially if decent rain arrives.

It’s not as if anybody in the north with killable stock is holding cattle back for later slaughter, however. With the Bureau of Meteorology’s SOI this month at minus-19.8 – its lowest level since January 2005 – few cattle people have any great confidence of even a ‘normal’ season heading from spring into summer.

That’s prompting many to sell now, rather than try to hold out for better weights later. Getting the sort of money they can for cattle today looks a lot more attractive than a potential feed bill in December or January.

Worth noting is the heavy reliance on feedlots for slaughter at present, with some anecdotal evidence that some yards are not refilling pens as quickly as they did earlier, after close-out.

That could again change, however, if there is no significant spring break in cattle areas, which may again force cattle back onto feed.

 

South starting to soften

A trend worth noting is the current ‘erosion’ in the price difference between northern parts of the continent (Qld, northern NSW) and southern regions, as the northern grids have continued to march upwards. One large multi-site export processor this week is in the rare position where it’s central Qld, southern Qld, NSW and VIC/SA grids are all exactly the same.

One larger northern operator has already started pulling cows out of selling centres further south – Dubbo, Forbes and potentially, Wagga, for example – which has not occurred for some time.

The processor said three to four weeks ago, cows were still worth 560c (delivered) or better in the south, and 500-520c in the north. But southern cow prices had now dropped to 500-505c, while Queensland grids had continued to surge – sparking buying interest.

“The balance has changed, north and south, which is not that unusual at this time of year,” he said. “It’s just numbers – they are extremely tight in the north, and starting to flow a little in the south.”

If the current trend continues, it’s hard not to see a lot more northern buyers operating in southern Australian sales, especially on cows, where the differential is more attractive. Better quality cattle in the southern are still very dear, relative to Queensland prices, with +600c for better Angus type heavy steers and trade cattle.

 

Export meat market getting tougher

A warning worth noting on slaughter cattle price outlook, however. The export meat market is getting tougher, driven to some extent by the US quota trigger point being reached recently. The quota issue is now significantly limiting volumes being shipped into the US, which means some manufacturing meat is being sold into alternative markets, at lower prices.

That’s taken some of the margin out of the complex for export processors – a significant factor, especially when cattle prices like those outlined above are being paid. It comes down to individual processors’ appetite to maintain current kill levels, at increasingly high procurement prices.

 

Female kill subsides

Further evidence that the drought-driven turnoff cycle is now over can be seen in the rate of female kill.

Queensland’s female slaughter number, as a percentage of overall kill last week reached 42pc, perhaps it’s lowest level since the drought cycle started. Depending who you talk to, 46pc or 47pc is seen as the trigger point, where herd reduction starts to occur.

The Queensland result is inevitably skewed a little by the relatively high proportion of grainfed kill (up to two-thirds of Australia’s grainfed slaughter takes place in Queensland), which tends to favour male cattle over females – especially at export weights.

In NSW, the only other state where gender is reported in kill stats, the female proportion last week remained just above 50pc. That reflects the flow of some females into the state from north of the border, and perhaps a greater reliance on domestic-weight slaughter, where females make up a larger share.

On a nationwide basis, the only indicator of gender comes from ABS data, which carries a significant lag-factor. Still worth noting, though, is ABS’s July figure, which still had female kill at 52pc of the total across Australia, the same percentage as in June.

But equally significantly, ABS had overall beef production in July as lower, year-on-year, for the first time in 34 months.

 

 

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