Weekly kill: risk in southern/northern turnoff clash?

Jon Condon, 14/08/2012


The gradual slide in the rates of beef kill experienced across Eastern Australia since early July continued last week, with a further dip in processing numbers.

The Eastern States kill for the week ended Friday, recorded by the National Livestock Reporting Service reached 121,491 head, another 1.4pc behind the previous week.   

A casual glance at Beef Central’s A$/US$ graph on the home page provides a fair indicator of one of the main reasons behind that trend. As the graph illustrates, there has been a relentless 10-week rise in the value of the A$ against the greenback, reaching US105.63c yesterday. From it’s recent low-point of 96.6c back in June 4 that represents a 9.3pc shift in value – savagely eroding Australian beef’s competitive position in international markets.

The effect is clearly evident in the US grinding beef trade, where prices for imported 90CL in US$ terms aren’t too bad, but have tracked steadily downwards when converted into A$ from 417c/kg at the end of May to close to 10-month lows last week, at around 384c. That’s a decline of close to 9pc, mirroring the currency movement.

Fortunately, as it turns out, the slower flow in supply of slaughter cattle so far this year means that supply has not greatly outstripped subdued export meat demand, where the dollar impact is seen.

Last week’s Eastern states kill saw declines in tallies in all states, bar NSW.

Queensland’s throughput reached 70,326 head, down 1pc on the previous cycle. Further time lost at JBS Dinmore on Thursday and Friday due to ongoing industrial action was part of the reason, however the flow of Queensland slaughter cattle numbers remain below expectations.

A number of southern Queensland plants will skip a day this week due to Brisbane (or local) show holidays, and another killing day will be lost in late September at many plants for the Queen’s Jubilee celebration.

Nationally, NLRS recorded lower saleyard throughput across reported selling centres last week with all states except Victoria logging lower numbers.

A lift in NSW meatworks throughput last week (+3pc to 24,334 head) can be partly explained by a return to work on Friday for Teys Australia’s Wagga plant, following a two-week closure for plant upgrade and maintenance reasons. Nippon’s Wingham factory is still shut for seasonal cattle access reasons and annual maintenance, but is offering quotes again for a recommencement of kills next week.

The other factor in NSW is encroaching drier conditions in some areas. It might be a little early yet, but there is a fair tract of the State that is looking for moisture and some producers are likely to be forced to make marketing decisions if there are no significant falls in the next fortnight or so.

Some districts in Central NSW and a bit further south are experiencing a bob-tailed spring, with green feed that is up and growing, but which could rapidly enter stress stage without further rain.

Areas of NSW and southern Qld where oats plantings have occurred are still a few weeks away from significant turnoff, but it remains to be seen how much impact oats-finished cattle has on the market, given the question-marks over the size of this year’s plantings in many areas.

The big mover in rates of kill last week was Tasmania, where numbers slumped 29pc to 2583 head. The JBS King Island plant is currently closed, while Longford and Devonport are experiencing reduced kills. Greenham’s plant at Smithton processed 1700 for the week.

In Victoria, kills last week eased 2pc to 16,989 head, while South Australia was back 1pc to 7259 head.


Northern, southern turnoff to clash?

One prospect being discussed in processing/cattle supply circles during Brisbane Show bar talk last week was the likelihood of some convergence of heavier rates of kill in both northern and southern parts of the continent in coming months.

In a ‘normal’ year, southern kills often reach a spring seasonal peak around the October long weekend, and it is looking increasingly likely that that will coincide this year with an unusually large second-half kill in Queensland. What effect that has in terms of beef supply, given current thin trading conditions in international markets, remains to be seen, but it could impact further on cattle price, should it occur.

Meatworks grid prices this week in southern Queensland are either unchanged or 5c cheaper on this time last week, depending on the processor. Offers from company to company are a little wider than normal at present.

Public quotes provided to Beef Central yesterday by larger southern Queensland processors were 320-325c/kg on four-tooth grassfed ox, 325-330c/kg on milk and two-tooth ox, and 295-300c/kg for best cow. EU grassfed steer were around 365c/kg, and 100-day grainfed ox the same. MSA grassfed steer were quoted to a top of 355c.

There is still a distinct 10-15c/kg premium evident in southern grids at present on most descriptions, reflecting the seasonal supply contrast between northern and southern Australia. That is still seeing some southern processors (coined ‘Mexicans’ by competition-wary Queensland operators) buying in southern Queensland.

But this activity is perhaps less than it was a month or two ago, as southern processors tend to wind-back kills, dropping production rather than paying high freight costs to top-up their killing rosters. The problems with shifting Qld cattle to Victoria, caused by NSW’s inefficient volumetric loading laws, is also a consideration.


Overseas markets

Imported manufacturing beef prices in the US were mostly steady last week on generally limited volume. It’s not that unusual at this time of year for US grinding beef demand to be soft, as foodservice business weakens and retailers prepare for their Labour Day holiday campaigns.

Overall US market participants indicated they saw good demand for domestic US product while imported beef trade was patchy. Most traders seemed content to sit back and wait for further developments prior to booking any additional material.

Asking prices from Australia continued to be well above what end-users in the US were willing to accept, generally 5-8c/lb between the ask and bids. In those cases when overseas packers and US end-users were willing to bridge the gap, business was done at CIF levels similar to a week earlier, often splitting the difference.

US end-users remain concerned about the potential for US domestic lean beef prices in September and November. If the current trend continues domestic US lean beef prices could dip briefly below US200c/lb. As for imported beef, there is generally less of a downside at this time of year, given the lack of supply from NZ and the general strength in the A$ and no big increase in cattle slaughter in Australia.

Analyst, Steiner Consulting expects US end-users to continue to buy hand-to-mouth in the short term, particularly with all the talk of big cow numbers coming to market from drought-stressed areas of the US. But US cow slaughter has pulled lower in recent times, despite all the talk of drought.

Steiner says in large part that is due to fewer dairy cows coming to market now that milk futures are closing in on US20c/lb.

US beef cow slaughter continues to run well below year ago levels. In part this reflects the smaller cow herd but also the fact that cow-calf producers remain reluctant to sell and are trying their best to weather the drought and hoping for a seasonal break.

However, with hay stocks depleting faster, some US cow-calf producers are running out of time and like last year, this could see a rush of US cows come to market in late September and October.


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