THE record bull-run in imported 90CL grinding beef prices shows no sign of abating, with the US indicator price climbing to a new record high of A840.6c/kg this week.
Prices for cow meat have now lifted a dramatic 217c/kg when measured in Aussie dollar terms since the start of 2019.
The 90CL (Chemical Lean) US imported indicator is a benchmark price for frozen manufacturing beef into the US. Supply uncertainty over coming quarters and strong global demand are the underlying drivers, enhanced recently by more favourable currency movements.
Chinese demand for meat is having a significant impact on supply and demand dynamics around the world, MLA said in commentary this week. Through 2019, China has quickly accumulated market share among key global exporters. This buying power is likely to continue, maintaining pressure on traditional markets, such as the US, MLA suggests.
Cow prices at three-year highs
Demand for manufacturing beef has overtaken female cattle supply as the major driver of prices, with the eastern states medium cow indicator this week rising to its highest level since 2016.
From the beginning of 2007 to the end of 2014, the NLRS medium cow indicator averaged 131¢/kg liveweight. From 2015 to 2018, the indicator rose to an average of 214¢/kg and since June this year, it has risen again to an average of 222¢/kg.
Seventy percent of cows sold though saleyards have been purchased by processors in 2019, predominately destined for overseas markets. This means that while domestic competition is important, it is the global demand that is ultimately driving the medium cow indicator higher.
On Tuesday the eastern states medium cow indicator rose to 247.25¢/kg liveweight, the highest it has been since 2016. The strength of current prices is remarkable when taking into consideration the severe drought that has resulted in high levels of female cattle slaughter seen during the past 12 months. Some of the top prices for medium cows seen this week included 264¢/kg at Wagga on Monday, 278¢/kg at Roma and 255¢/kg at Shepparton on Tuesday.
With question marks regarding US domestic supply next year and the seemingly ever-growing demand for beef from China, buyers are using forward sales tactics to secure supply and purchasing lean primal cuts, such as knuckles and insides, driving import prices higher.
90CL/cow price spread widens
The 90CL premium (spread between the saleyard medium cow indicator and US imported 90CL indicator) is now at A356¢/kg – the largest spread seen since December 2014.
With the Australian herd still in a liquidation phase, high 90CL prices provide reassurance that demand shouldn’t recede any time soon, MLA said in commentary this week. If a decent break in the weather was to occur, reinvigorated restocker interest would compete with the slaughter market, causing the medium cow indicator to rise sharply, again closing the spread on the 90CL price.
Typically, the Australian medium cow indicator responds to movements in the lean manufacturing beef market. As global demand bids up the price of US imported beef, the Australian market has found support despite challenging seasonal conditions and elevated female slaughter. In times of high cow turnoff, strong 90CL prices add value which would likely be missing otherwise, MLA said.
Lean beef price continues to climb the ladder
In its weekly market commentary, US market analyst Steiner Consulting said lean imported beef prices continued to climb the ladder, as offerings have been consistently short of bids and some market participants have found it increasingly difficult to cover needs.
“It is important to recognise that market shorts are not just traders that have promised to deliver product at a given price, even though they had yet to purchase the product,” Steiner said.
“The biggest shorts in the market are processors that have committed to deliver finished product to their customers either on a fixed price basis or, more often, on some sort of formula basis. They need to figure out a way how to make that happen. They can purchase fresh product in the domestic market but adjusting the process to using all fresh sometimes takes time,” Steiner said.
Foodservice operators that had a printed menu item but need to purchase the raw material are also said to be a ‘natural short.’
It is those participants that are driving prices higher in the US, as they seek to find price levels that will draw offerings from Australia, New Zealand, Central America or South America.
“Effectively at this time we have a bidding war between US and Chinese buyers for what is an uncertain supply in the next three to four months,” Steiner said.
“This is a good time to be a New Zealand or Australian processor. Some US end-users appear to have concluded that the best thing to do, at least in the short-term, is to dip into the domestic fed beef supply in order to supplement any potential shortages. While it may be necessary to pay up in order to buy fed domestic beef cuts to make that happen, this is necessary to relieve the pressure.”
“Otherwise the bids for what is are non-existent supplies will simply keep going up,” it said.
Domestic supply availability concerns for Q1
Current US domestic cow slaughter is seasonally higher, mostly due to more beef cows coming to market, Steiner said.
Last week, US cow and bull slaughter was 4pc higher than a year ago and the highest weekly slaughter so far this year.
The main concern for users of lean grinding beef in the US is what happens in the first quarter next year,” Steiner said. “Beef cull cow numbers will be seasonally lower and higher calf prices will slow down the push towards more liquidation. Sharply higher dairy prices and speculation for strong China dairy demand will likely keep dairy culling in check as well.”
While overall US cow slaughter in 2020 is expected to be slightly higher than in 2019, it is possible that cow slaughter in the first quarter may be down as much as 5pc from a year ago.
A big uncertainty in the US manufacturing beef market was what happens if/when Australian beef production declines, especially as more and more New Zealand beef exports are directed into China. NZ’s China exports were sharply higher in September, accounting for about 60pc of all export trade.