Resurgent US beef trade – but will it last?

Jon Condon, 03/02/2012


Click on image at bottom of page for a clearer view.   Source: Steiner ConsultingThe last three months of beef trade into the US have delivered some encouraging signs for Australian exporters, after a 2011 trade year which crashed to just 167,000 tonnes – the lowest number in more than two decades.

As highlighted in this morning’s companion story “US, EU only highlights in flat January export trade,” last month’s exports to the US almost doubled from January last year, on top of solid trade numbers in November and December.

But will it last?

On the plus side, from an export beef supplier’s perspective, there were some highly encouraging signs in this week’s USDA national beef herd figures (See Monday’s story, "US drought impact seen in herd numbers”).

The result was considerably worse than what was expected by beef industry analysts, with 90.77 million cattle on US farms on January 1, down 2.1pc on this time last year. The US beef cow herd size (29.88m) was sharply lower than a year ago, down 3.1pc – much more severe than analysts expected, and the worst seen since 1986.

But there are lots of other aspects to consider, suggests US analysts Len Steiner and Steve Meyer.

The A$ dollar has again appreciated strongly during January, rising above US107c in value on Wednesday.

While this is normally negative influence on prices offered for Australian beef in the US, as the chart here shows, other customer markets are not faring much better on the currency front, in comparison with the A$.

Over the period of the chart from July 1 last year to January 1, 2012, the A$ has gaining ground versus the Russian Rouble and the Korean won. Both are competitors against the US for Australian manufacturing meat.

What the chart fails to show, since it concludes in early January, is that the A$ has since strengthened further against the US$ in the past fortnight and would now sit above 100pc in the comparison with value from July 1 last year, just as the Rouble and the Won do.

This was reflected in escalating asking prices for imported beef from Australia in the US market last week.

While Australian shipments to the US are off to a better start than a year ago, reaching 11,800t in January, this is still only on-par with exports for the same period back in 2010.

However, the pace of return in exports to the US will depend on a number of factors:

  • currency movements (not just Australia/US, but other cross rates as well)
  • the state of global economic growth and demand in other markets
  • weather in Australia and
  • the possibility of US grinding beef shortages and limited product availability from South America.

“On all these fronts, we see only few signs that would point to a significant recovery in shipments,” Len Steiner said.

“On the currency front, the A$ is currently trading at a premium to the US dollar, not exactly a supportive factor. And there are plenty of question marks surrounding the state of the global economy. Recession in Europe and slowing economic growth in China are a concern.”

Despite this, the outlook is for the global economy to expand by a little above 3pc in 2012, with strong growth in emerging markets.


NZ supply has impact

Another factor that will impact imported beef prices in the US this year is availability of New Zealand product.

Last year, NZ’s market share of trade into the US was almost identical to Australia’s – not due to any great expansion from the Kiwis, but to Australian beef’s major decline, discussed above.   

Currently, NZ exports remain somewhat limited as slaughter there has yet to return to previous year levels, slowing down late last year and likely be limited during the first quarter in 2012, ending March 30.

Since October, NZ cow slaughter is down 35pc from the same period a year ago while total cattle slaughter is down 18.7pc.  Slaughter has increased in the last two weeks, as plants resume operations. Still, cattle slaughter for the last reported week (ending Jan 21) was down 10.6pc from the previous year, with kills in the North Island down 18pc.

In domestic beef supply, US cow slaughter has begun to drift lower and the expectation is for kills to be even lower in February and March, underpinning analysts’ expectations for very firm prices for US lean grinding beef.

US cow and bull slaughter is currently running at about 140,000 head a week, compared with more than 150,000 head a week in early January and a seasonal high of 160,000 head a week back in late November and early December.

The tight domestic lean beef supply has caused prices for US cow carcases to hit all-time record highs and the price of 90CL beef, fresh FOB Central, is currently as high as US208c/lb (A$4.27/kg).

Imported frozen 90CL currently is priced over domestic but it is worth remembering that domestic is fresh, versus  frozen imported, and freight charges to bring product from Central US to the East Coast currently run as much as US10c/lb.

Further cutbacks in the US cow kill could push domestic prices up by another 10c/lb in the next two months, analysts say, with prices likely to peak sometime in the April/ May period.



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