Record high grinding beef prices remain likely in the US this year, despite lacklustre US food service and retail demand in the early stages of the year and prospects of significantly larger Australian exports.  

In its recent 2013 industry projections, MLA forecast Australian beef exports to the US this year to increase 14 percent year-on-year, to 255,000 tonnes. Other analysts have suggested the increase may be as much as 20pc.

That follows from the 34pc increase in trade seen in 2012, after shipments the previous year reached a 40-year low of just 88,000t due to US herd liquidation forced by drought.

Steiner Consulting has forecast 90CL manufacturing beef prices to average 12pc higher in 2013, as the US cow slaughter reduces.

“We still think that tight domestic lean beef supplies will keep lean grinding beef values at record levels in the US this year,” Steiner Consulting said in its weekly US imported beef market report on Friday.

The imported 90CL price on Friday was quoted at A418c/kg, up about 7pc on this time last year.

Steiner said one factor that had kept grinding meat prices in check in January was the lack of US retail demand for rounds and chucks, which in turn pushed more of those cuts into to the grinder, limiting import demand.

However US fed slaughter is expected to drift lower in the remainder of February and March, helping prop-up the price of round cuts and consequently grinding values.

Imported beef prices were for the most part steady last week as end-users were content to sit on the sidelines while overseas packers did not seem inclined to offer product at lower prices, Friday’s Steiner report said.

“Market participants remain divided in their view of the market going forward. Those with a more bearish view point to the increase in slaughter in Australia and NZ and expect imported beef values to be under pressure going into the spring.”

“They also point out that foodservice demand continues to be disappointing while retail demand is mediocre, at best. High beef prices are causing retailers to feature more chicken and pork. With demand in markets like Russia and the EU continuing to struggle, the expectation is that the US will be very competitive and pull more imported beef than the previous year, at lower prices,” Steiner said.

The bullish argument continues to focus on the lack of lean and extra lean beef in the US market.

US cow inventories declined sharply last year and producers are showing a willingness to hold back heifers after several years of cow liquidation.

As of January 1, the US cow inventory was 29.3 million head, 2.9pc lower than the previous year, and the lowest figure since 1941.

“With cattle inventories continuing to shrink, it becomes increasingly difficult to sustain lean grinding beef production levels in the US market, necessitating more beef to be imported,” the Steiner report said.

While Steiner’s own forecast for US cow slaughter this year was for a decline of about 8pc, it put forward an argument suggesting this might be as high as 20pc, particularly if seasonal conditions improve and  US cow calf operators start retaining a greater proportion of females for herd rebuilding.

An 8pc decline in US cow slaughter would imply about half a million fewer cows going to slaughter in 2013, versus last year.

Assuming that each cow yields about 135kg of trimmings (mostly lean 90CL), that would imply a reduction of about 70,000 tonnes of lean grinding beef. Even if Australian lean grinding beef exports to the US were to increase by 20pc this year from 2012 levels, that would still only fill about two-thirds of that shortfall.

“The key assumption, however, is weather and the ability of producers to hold on to the remaining cows they have,” the Steiner report said. “If drought conditions persist, we could see cow slaughter down only about 3-4pc from year ago levels.”

The latest USDA data also shows that producers have been holding back heifers in 2012 and 2013. But even though beef cow replacement numbers were up 2.4pc in January 2012, the US beef cow inventory by 2013 had declined some 2.9pc, implying that while producers held back heifers for herd rebuilding early in the year, they probably abandoned those plans when drought conditions hit.

The latest data shows that as of January 1 this year, US producers had increased the number of heifers held back by 1.9pc. That indicates that they are willing to expand modestly, but whether the heifers enter the cow herd will depend on feed availability.

Australia will be well placed to increase exports to meet the import opportunity in the US, however. Given the forecast for further expansion in Australian beef production in 2014 and 2015, exports to the US could exceed 300,000t by that time, the recent MLA Projections suggest.

That would present the real possibility of the US again exceeding Japan as Australia’s largest export market by volume – a situation that has not occurred since 2003.