Declining US cow and bull slaughter, combined with the lower value of the A$ and reduced export supply out of New Zealand, is helping deliver improved prices for Australia’s grinding beef exports to the US.
Imported beef prices in the US were mostly higher last week on very limited offerings from NZ and higher asking prices from Australian packers, market observers said.
In A$ per kg terms, 90 CL blended cow hit 416.2c/kg last week, up 8.8c/kg on a week earlier and almost 20c/kg better than this time last year, when the A$ was worth close to US104c.
Last week’s price is the highest in A$ terms since mid-February, and approaching the high point over the last 12 months seen in December, when it briefly touched 424c/kg
In USc/lb terms, last week’s price for imported 90CL cow was 185c, up 3.5c on a week earlier, and in fact 13c worse off than last year due to the Australian currency movement.
In its regular imported beef market report, Steiner Consulting said market participants last week continued to point out that US end-user demand appears to be improving – especially for product delivering in forward time slots.
US domestic grinding beef prices for the most part remain in the $200/cwt range but supplies have been trending lower. Preliminary cow and bull slaughter through July 24 shows US slaughter is running under 130,000 head per week – below slaughter levels during the comparable period in the last three years.
“We expect domestic US slaughter to drift even lower in August and generally be below year ago levels in the (northern hemisphere) autumn,” the Steiner report said.
While pasture conditions may be challenging in some parts of the US, especially in the Western Great Plains, conditions are significantly better than a year ago in other areas.
Lower feed costs also tend to be supportive of lower beef cow and dairy cow slaughter. Dairy producers are on track to see notably better margins in Q3 and Q4 and US dairy cow slaughter has been drifting lower since about April.
“Feeder cattle prices in the US are also on the mend. Producers slowed down their marketings of calves last year as high feed costs and poor feedlot margins caused feeders to back up. At the beginning of the year there were more feeder cattle outside of feedlots than the previous year despite a sharp decline in the calf crop. Those feeder cattle, however, have been slowly coming to market, albeit at significantly heavier weights than a year ago,” the report said.
“But as US cow-calf producers and backgrounders work through the inventory, we think eventually the time will come when feeder cattle supplies will once again be significantly tighter than they are today.”
One factor to watch is the weight of feeders being placed on feed as well as the total number of cattle placed in US feedlots.
Another indicator will be the price of feeder cattle being placed on feed, Steiner said.
“After all, as feed prices decline and the number of cattle available for marketing contracts, US cattle prices should remain high priced, leading to notably better margins for operators.”
Already the price of US feeder cattle has jumped some $7/cwt in the past five weeks, and it is now 8pc higher than a year ago.
“We think improving feeder cattle values and lower feed costs should limit the number of cows coming to market from September. They could also further reduce the number of fed cattle coming to market as producers retail more heifers after several years of aggressive cow liquidation,” the report said.
Imported supply declines
From the supply side, combined Australian/NZ slaughter has declined since May, but the decline is entirely due to the seasonal decline in NZ numbers, and total numbers still are quite a bit higher than a year ago.
Steiner estimates that combined Australian/NZ slaughter for the week ending July 19 at 175,000 head, down from the 220,000 head/week that were coming to market in May at the peak of the NZ drought, but about 19pc higher than a year ago. NZ slaughter currently is hovering at around 19,000 head per week, 3pc lower than a year ago.
Australian numbers remain much larger than last year as feed supplies and dry conditions in some areas continues to push cattle to market.
The seasonal change in supply is important, however. After all, NZ was the top supplier of imported grinding beef to the US in the first half of the year, due to drought turnoff. Australian processors continue to do their best to avoid the US market and the explosion in China demand, especially for round cuts, has provided the opportunity to further diversify their market base away from the US.
Currency moves remain a big wild card going forward, Steiner suggests.
“They are also a source of significant uncertainty among US end-users. Some market reports continue to paint a very bearish picture for the A$ for the next 12 months, suggesting that the A$ could decline another 10c versus the US$.”
The expectation reflected divergent monetary policies in Australia and the US. Australia’s Reserve Bank is expected to cut rates further later in the year, given signs that the Chinese economy is slowing down, while the US FED on the other hand, is expected to change its stance on bond purchases at the end of the year.
“We don’t claim to be currency analysts, but view the possibility of a weaker A$ as putting a ‘Sale!’ signs on Australian beef,” the Steiner report said.
“The problem, however, is that demand in markets other than the US remains quite strong, and in the end, that’s what will determine the sale price. What makes for uncertainty, however, is if the A$ weakens at the same time as China demand slows down. That could potentially make significantly more beef available for sale in the US and at lower price points than today.”