Disappointing US domestic food service and retail demand continue to put a handbrake on Australian manufacturing beef sales into North America.
This week’s imported 90CL cow meat price quoted by Steiner Consulting on Wednesday was a neat 400.0c/kg in Australian dollar terms, a little improved from a week earlier, but still a long way from where it was back in December, above 424c/kg.
Steiner’s recent weekly imported beef market reports continue to paint a picture of sluggish US consumer demand, with recent metrics pointing to demand problems, as stagnant US income growth and the overhang of people outside of the labour force limits the ability of the US consumer to pay more for beef, both at retail and foodservice.
“From the National Restaurant Association’s restaurant index, to retail food sales, to the results of publicly-traded food companies – there appears to be no argument that business conditions during the first three months of the year were challenging,” a recent Steiner report said.
For US imported beef, foodservice remains a critical component, as the largest share of beef coming from Australia and NZ is manufacturing beef which goes into fast food patty manufacturing.
Foodservice business in the US has drifted lower in the last three months, even as foodservice operators remain optimistic about the future.
Steiner suggests the decline could be partly related to the aftermath of Hurricane Sandy, which affected heavily populated areas in the New York New Jersey metro area as well as a much colder and snow-filled winter than in previous years.
Further adding to the weakness in demand is the 2pc social security tax increase implemented on all Americans on January 1, and the cuts in government spending following mandated sequester cuts.
“The easy money policies of the US FED have been successful in stabilising the financial markets and have buoyed US stocks but disposable income growth in the US was negative in the last reported month,” Steiner reported.
The unemployment rate in the US has declined from 10.1pc during the height of the recession in October 2009 to 7.6pc in March this year.
“Normally that would be good news and worth celebrating. But the main reason for the decline in the unemployment rate is not because the economy is quickly adding jobs, but rather because people are dropping out of the labour force,” the Steiner report said.
“Meat consumers, and especially for beef, tend to be people with jobs and that does not appear to be the case in the US. Indeed, the proportion of 15-64 year olds that are employed was 58.5pc by March 2013. Some of the decline is due to the baby boom generation retiring, but still that only explains a fraction of the contraction,” Steiner said.
Trade slow this week
Imported beef trade continued at a slow pace in the US this week, with market participants indicating asking prices from overseas suppliers were notably higher that what US end-users were willing to pay.
The market also was taken aback by the sharp drop in the price of lean and extra lean grinding beef in the US domestic market. The price of US fresh 90CL boneless was quoted on Tuesday at US$2.06c/lb, on a weighted average basis, about 11c lower than the previous week and 17c lower than the previous year.
“The expectation among market participants and analysts was that at least for April and May, prices for domestic lean grinding beef would continue to trend higher,” Steiner’s most recent report issues yesterday said.
“Warmer (northern hemisphere) spring weather and preparations for the start of the grilling season normally tend to increase demand for lean grinding beef. But slow sales in the first quarter of the year have left many end-users with more inventory than they were expecting for this time of year.”
“Also, with sales relatively slow and colder than normal weather in a number of key areas, end users remain very cautious about booking product out-front.”
Steiner’s view is that end-users are currently waiting to confirm an up-tick in sales before committing to any significant volumes for imported beef out-front.
Also important to note is the escalating value of fat beef trimmings in the US. US fed cattle slaughter has declined sharply in recent weeks, and this has pushed the overall grinding meat block calculations higher, negatively affecting demand for lean and extra lean beef.
Firm demand from alternate grinding meat markets
In contrast, export processors in Australia and NZ continue to report that sales to other markets remain firm, and this has limited the supply of beef offered in the US.
Based on actual sales in the first two weeks of April, total Australian shipments the US for April are currently projected at 17,700t, 7.5pc lower than a year ago.
While that figure may be a little optimistic, given the early Easter this year, the total US imported beef supply from Australia continues to be relatively limited, which will keep Australian beef imports in check at least through May.
New Zealand supplies will likely be large in April due to the March drought but slaughter levels there have declined considerably. The situation in the North Island has improved considerably and more wet weather expected in the next two weeks should help with feed supplies as producers prepare for winter.
US cow slaughter picks up
US cow slaughter continues to run well above year-ago levels, as the drought conditions continue to persist in some parts of the Great Plains. That has put some pressure on the price of lean grinding beef coming to market.
Cow and bull slaughter is running at a weekly pace of around 140,000 head, 15.7pc higher than the same period a year ago, and also above 2011 levels. The increase in US cow slaughter has been largely due to more beef cows coming to market, including cows from the Texas panhandle, Steiner’s report said.
A number of factors are likely in play, to increase the US beef cow slaughter.
“First, hay prices remain at all-time record highs,” Steiner said. “The high price of hay would not be a problem for many producers at this time of year, but snow and cold weather in the Great Plains and Southern Plains in late March and early April likely had a negative impact.”
And with feed supplies tight, some producers accelerated marketings of cows that normally come to market at this time of year (open cows, unproductive animals, etc).
Hay supplies would likely remain limited in 2013, as producers continue to put more marginal acres into crop production and reduce the acres going into hay production.
Also important to note is the trend in US feeder cattle prices. While the relationship between feeder cattle prices in the spring and the pace of cow slaughter is not always strong, Steiner thinks that the drop in prices this year changed the profit calculus for a lot of producers.
“After all, lower forward returns on calves combined with high feed costs simply make it more difficult for producers to hold on to their cows. Often analysts look at the number of heifers held back for beef cow replacement as an indicator of herd rebuilding. However, if producers continue to liquidate productive cows, then the impact of the replacement heifers is minimal at best in expanding the beef cow herd.”
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