The recent series of record-breaking Eastern States weekly kills have so far failed to have a major destabilising influence on the domestic wholesale beef market, partly due to strong export performance during March.
Weekly cattle slaughter in Australia in February and mid-March has averaged 15.5pc above year-ago levels, including an all-time record seven-day weekly Eastern States kill last week at 155,286 head.
One of the nation’s largest wholesalers, with operations across the Eastern States, told Beef Central this week that apart from the recent series of big killing weeks, beef had been in relatively short supply since January with a lot of breaks and lost kills involved.
“That has probably worked a little in our favour, in being able to cope with the more recent huge weekly kill volumes,” he said. “There was not a lot of beef sitting there in cold storage at the start of that cycle.”
“But having said that, I certainly wouldn’t want to see these record kills continue after Easter, otherwise it will inevitably put a lot of pressure on domestic wholesale prices. Short kill weeks this week and next, due to Easter, and a couple of weeks hence, due to the Anzac day national holiday should help lighten the volume of beef hitting the market,” he said.
Fortunately two very solid wholesale trading weeks in the lead-up to Easter had also helped dent the backlog of beef in storage.
Another large wholesale operator said there was not too much evidence of inventory build-up in cold storage as recently as late last week, but it was starting to occur now on certain cuts. When that happens, unless those cuts can find a home in an export container, it inevitably leads to a fall in price on domestic wholesale markets.
“If a domestic market salesman has 2000 cartons of striploins to sell this week instead of 1000, he is going to be thinking about price adjustment,” the wholesaler said.
“But China is definitely playing an important role in moving some of that volume away from cold-storage at the moment. In the past Russia or Indonesia has helped in that role, but fortunately this year it is China,” he said. “That is helping support price into Japan, Korea, and to a lesser extent, the US, in the face of heavy supply.”
MLA chief analyst Tim McRae thinks strong export performance so far during March is part of the reason for the lack of impact so far on domestic markets.
“We’ve heard report that there’s very little of this extra beef staying on the domestic market during March, despite an A$ value this week well above US 104c,” Mr McRae said.
“If anything, one of the positives out of this current extreme high turnoff is that it is being well absorbed by export customers,” he said.
A pro-rata calculation on forecast March exports, carried out by MLA on Monday, suggested a total export volume this month of 93,000 to 94,000 tonnes.
“The holy grain for Australian exports is a 100,000 tonne shipment month. The highest we have ever recorded in the past was 94,600 tonnes, so this month could go very close,” Mr McRae said.
“The only day that would be lost this year would be Good Friday, as Easter Monday is in April, so we are some chance of setting an all-time monthly export record.”
This had come despite relatively modest exports to the US, likely to be down about 30pc on March figures last year, with volumes largely displaced by high New Zealand exports (see this morning’s separate story).
Beef Central asked Mr McRae for his view on why the Eastern Young Cattle Indicator had remained surprisingly robust in the face of huge saleyard numbers in recent weeks, and some plunging price figures for saleyards cattle.
“If you had asked me what the EYCI result would be after two successive record weekly Queensland kills above 81,000 head, and huge saleyard numbers given a starting point at about 340c/kg, I would have considered it could have fallen a lot further than it has,” he said.
Mr McRae said it was ‘plausible’ that part of the explanation might be that the type of cattle currently being presented for slaughter and saleyard disposal in the face of drought conditions did not fit the EYCI’s yearling and vealer descriptions, and for this reason the indicator might not have accurately reflected the broader changes being witnessed in the market.
“We did some EYCI analysis a couple of weeks ago, looking at the number of cattle recorded in the designated indicator categories, compared with the earlier three very wet years. It was evident that in a particularly dry year like this, the poorer cattle drop out of the EYCI calculation, due to the specs applied, whereas in a wet year, a lot more cattle jump into EYCI categories.”
That observation is not intended as any form of criticism of the EYCI benchmark, but simply that in times like this it perhaps does not capture the full sentiment of the big changes being seen in the physical cattle market.
The Eastern Young Cattle Indicator closed yesterday at 326.25c/kg, unchanged from a week ago, and 1.25c better than Wednesday. There will be no EYCI figure issued today, due to the absence of sales in the lead-up to Easter. Reports will re-commence Tuesday next week.