Trade

Further hike in US grinding meat price approaches historic territory

Jon Condon, 22/11/2013

 

The recent strong price surge for Australian 90CL grinding beef into the US continues, reaching another recent-times record of 447.5c/kg in Australian currency terms last week.

That’s a further 7.6c/kg higher than where it sat a week earlier, and reaches a 12-year high, driven by recent softening in the currency and momentum in demand from US grinders as domestic US manufacturing beef supplies dwindle.

Current prices are the highest seen, in A$ terms, since a short period in September 2001, but the huge difference back then was that the currency was at a ten-year low, worth aroundUS45c – less than half what it is today. 90CL prices briefly reached an incredible A480c/kg back then, before the dollar started to rise in value again.

The recent sharp spike in 90CL pricing is clearly evident in Beef Central’s Home Page ‘industry dashboard’ graphs, accessible here.

So what’s driving the recent trend?

US analyst Len Steiner, in his weekly imported beef report issued Wednesday, says there has been less imported beef on offer in the US import market this week from Australia, while NZ supplies are yet to build up with the start of their new processing season.

As a result, the offer prices continued to increase.

While the shift is stronger when represented in A$ terms than US$, the indicative 90CL cow beef has still moved up US2.5c, to US201c/lb, as the A$ has continued to depreciate.

“Concerns remain among US beef end-users that an expectation for tight supplies of both fat trim from fed cattle and lean trim from domestic and imported cow beef will cause beef price inflation into 2014,” Mr Steiner said in this week’s report.

A$ drops a cent overnight

Sure to add further to recent momentum, the A$ dropped a cent overnight, sinking as low as the US91’s, before recovering a little to sit at US92.21c this morning. The big shift came after Reserve Bank governor Glenn Stevens made comments yesterday suggesting the RBA:

  • wanted to see the A$ lower
  • regarded the A$ as currently being above levels it would expect to see in the medium term, and
  • would not rule out currency intervention to push the $A lower. In particular, there was a warning that the RBA’s reticence to intervene in the recent past did not mean it would rule-out such action in the future.

Last week’s US imported beef report pointed out that supplies of cow meat in the US domestic market have been dramatically lower this northern hemisphere Autumn.

“So far that has had a limited impact on the price of lean grinding beef, but that could change quickly, especially once retailers empty their meat case of Thanksgiving turkeys (November 28),” the report said.

The seasonal tendency is for lean grinding beef prices to move sharply higher in the first two weeks of December.

“Prices for beef cuts are particularly high this year, which should push retailers to feature more ground beef in the two weeks following Thanksgiving,” Mr Steiner said.

From a seasonal perspective, it would not be unusual for lean domestic beef to gain about US10c/lb in the next fortnight.

“The shortfall in cow slaughter could make the price run-up this year even more explosive,” he said.

While US beef cow slaughter had been running below year-ago levels since August, more recently there had also been a decline in the number of US dairy cows coming to market. That’s because global milk prices are very high and demand for US dairy exports has been increasing.

With US corn prices coming down, dairy margins have been improving rapidly, which in turn meant fewer US dairy cows would be available for slaughter in the next three to six months.

“The bottom line is that there’s likely to be shorter supplies of US domestic lean cow meat for winter and spring needs,” Mr Steiner said.

A lower A$ should also help bring more Australian imported beef to the US, although the big ‘wild card’ remained the level of competition for the same product from China.

Weekly figures for last week showed total US cattle slaughter at 599,000 head, down 1.3pc from the previous week and 4.4pc lower than the corresponding period last year.

The year-on-year declines continue to be driven in large part by fewer beef cows coming to market.

Steiner estimated US cow and bull slaughter last week at 138,000 head, down 11pc from a year ago.

Respected Oklahoma State University extension leader Derrell Peel on Monday said fourth quarter US kills were providing insight into the general expectations for cattle and beef markets in 2014.

“US cattle slaughter for the year to date is down 1.7pc, but it’s down an average of 3.6pc in the last four weeks,” he said.

“Both US cattle slaughter and beef production are expected to decline for the remainder of the year, bringing fourth quarter cattle slaughter down more than 5.5pc, year-on-year, and beef production down 5pc,” he said, in a report.

For 2014, US cattle slaughter is expected to decrease by 7pc year-on-year, leading to decreased beef production of more than 6.5pc for the year.

$300 returns/cow next year in US

With the US cattle herd now falling to a 61-year low, economists are predicting extreme high cattle prices in the US next year, backed also by high domestic beef demand and improving global opportunities for US export.

University of Missouri beef economist Scott Brown told the Drovers’ Cattle Network that the forecast for the US cattle market over the next two years compared to the ‘golden era’ of US beef profits in 2004.

In addition to high cattle prices and low feed costs, beef demand in the US and on global markets was improving.

“International trade has been important. It’s really a bright spot when you look ahead for 2014,” Mr Brown said. “Not only do we expect domestic demand for beef to be better as we look ahead to 2014, but the ability to move product into markets like Japan, South Korea and China does nothing but continue to help us on the price side.”

Mr Brown told US producers that cow-calf returns could skyrocket to US$300 per cow next year, based on estimates from the Livestock Market Information Centre.

US beef prices continue to improve and are expected to move an additional 2-3pc higher next year, but the trend could change if US consumers turn to pork and poultry as less expensive meat options. 

 

 

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