Domestic wholesale meat prices come under heavy pressure

Jon Condon, 12/02/2020

A SURPLUS of meat on the domestic market – driven in part by diversion of product out of export to China, and particularly flat February consumer demand – has put heavy downwards pressure on domestic wholesale beef prices this month.

February is typically the toughest month of the year for domestic wholesale/retail beef, as consumers return to work facing holiday bills and school fees. However this February was described this morning by wholesale traders as being ‘particularly tough,’ and ‘very lacklustre’.

Adding to that, a buildup of chilled stocks since late last year, and some diversion of product out of trade into China as a result of coronavirus is being blamed for some of the current price slump.

Volumes in cold storage have apparently risen on concerns over coronavirus across Asia, and in one trader’s words, “everyone is carrying a little December meat around them.”

“That’s unheard of at this time of year– especially in sweet cuts,” one wholesaler said. “Traders are normally scratching for supply of barbecue cuts after the busy summer barbecuing season. I’ve never seen so many sweet cuts in storage as is out there at the end of January/early February this year,” he said.

One domestic wholesaler this week said his business was currently writing less money on cube rolls and striploins than it was writing five years ago, due to flat demand and volumes in storage.

“That’s in total contrast to what the Eastern Young Cattle Indicator is telling us – now at three—year highs. It’s quite bizarre, really,” he said.

Pricing in the market is a little difficult to establish at present – partly because there is still so much October/November produced meat (when rates of slaughter were still very high) in the system.

That has put pressure on loin cuts like strip loins and cube rolls, and is also being seen across a wide range of items.

Big correction in pricing

Reliable trade sources this morning told Beef Central that good chilled PR striploins (from six-tooth steer), without too much age on them this week were worth around $11/kg in the wholesale market. In one example, striploins with an August pack-date were quoted at $10/kg.

PR cube roll asking prices this week were around $16/kg, and had been lower in the past few weeks, down from $20/kg before Christmas.

Meat produced well before Christmas, which was now being challenged by pack-date issues, was contributing to the current tough domestic market, a wholesaler said.

“Once chilled product gets a certain age around it (pack date), the need to sell becomes more urgent, and everybody knows that,” he said.

He suggested a distinct price difference was evident for ‘fresher’ product over chilled meat that had some excess age to it, which could be worth $1-$2/kg on many cuts.

“Some retail customers are now a bit more ‘precious’ about using older meat than they used to be. Anything beyond three or four months since packing and they lose interest,” he said.

Premium MSA type meat has also tracked downwards recently, although that segment was probably ‘over-cooked’ late last year, in response to China demand. MSA cube roll asking prices at one point late last year reached $28-$30/kg, but the same item was now making $21-$22/kg in the domestic market, with demand as quiet as it is.

At the commodity end, trim prices had probably experienced the biggest drop of all on the domestic market, a trader said, falling 30-40pc since late last year. Trim today was back to $7-$9/kg depending on quality, after making $11-$12/kg late last year.

“The whole market spectrum has come back quite dramatically,” a trader said.

“With the combination of particularly hot weather and bushfires, many retailers suffered a particularly flat January barbecue season this year.”

Rain impact

Wholesalers this week said some processors were already trying to price-in the recent rain, and rise in cattle prices, into wholesale meat offers, but domestic demand generally remained ‘very flat,’ and buyers were pushing back.

Most wholesalers spoken to for this report agreed that some lost processing days due to rain disruptions in coming weeks would probably a ‘good thing’ for the beef supply chain, to take some pressure off excess supply.

“You don’t like seeing processors having ‘dark days’ (cancelled killing shifts due to rain), but the fact is there is too much meat in the system at the moment,” one wholesaler said.

“Shortening up supply for a while will help the supply/demand balance,” he said. “But having said that, there’s still a lot of cattle on feed across Australia, so the impact of rain on meat production will be moderated to some extent, by that.”

Another large wholesaler said the ‘big guys’ (exporters servicing the China market) appeared to be doing a relatively good job in re-exporting product originally destined for China into other export markets, or using alternate ports, rather than dumping product back on the domestic market.

“If it does show up on the domestic market in bigger volume, it’s more likely to be in frozen form, in about four to six months’ time,” one wholesaler said.

“We’re not seeing mountains of higher quality beef hanging around. The commodity end of the market has come off, but it is still moving, and the bids out of the US today were a fair bit higher than the domestic market.”

Another large wholesaler said with the inevitable decline in cow slaughter across Eastern Australia following recent rain, there would be less budget meat produced, and more domestic customers who would normally take those products would be forced to shift into dearer PR-cipher (six-tooth) type steer meat, for example.

“With lower rates of kill now being seen following the rain, you’d anticipate that surplus product left in the system since late last year could be disposed of reasonably quickly, but it will happen at a price,” he said.

“A lot of cutting rooms, manufacturers and similar end-users bought a fair bit of meat late last year that they probably wish they didn’t own now, as well, given what prices have done.”

“But to be fair, at that time, nobody knew where the market was going to go.”

“That big volume of meat in the system since late last year would normally get better-absorbed within the domestic trade, but the problem has been that late-January February this year has been an awful time to be selling meat.”

Beef specials needed

One prominent wholesaler said once the February ‘doldrums’ had passed and domestic demand again picked up, he hoped retailers generally – both major supermarket groups and independents –  would again raise some beef ‘specials’ at attractive prices as part of their offer, to help clear product backlog.

“Red meat specials are few and far between over the past year or two. Apart from mince, chicken and pork have been the loss leaders, but it would certainly help. We need to keep red meat as the centre of plate item, not some luxury item for special occasion dining,” he said.






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