While there’s a combination of reasons why Australian slaughter cattle prices have slipped substantially in the past fortnight, some of the impetus behind the trend can be traced to recent events in the US market.
As Beef Central described in yesterday’s weekly kill report, there has been a 35-40c/kg slide in direct consignment slaughter cattle prices in the nation’s major concentration of processing in southeast Queensland since early February.
With the decline in recent beef export shipments to markets like China (4000 tonnes in January, compared with +10,000 tonnes a year earlier) and Indonesia (trade access restrictions due to a drive for self-sufficiency) the US appears to again be taking on a level of higher importance for Australian beef exports.
Shipments after the first three weeks of February have already gone past 32,000 tonnes, suggesting another 40,000 tonne month is within range.
Imported lean grinding beef prices into the US continued to decline last week, on very limited trade, however.
The weekly price quote supplied by Steiner Consulting on Thursday reached 557c/kg in Australian currency, down another 8pc on the week before, and a long way from A623c/kg at the start of the year. The current price is the lowest reported value since July last year.
Comparison between the current value of Australian imported 90CL frozen beef and US domestic fresh 90CL show imports are currently trading at a US60¢/lb (20pc) discount to US domestic product – a record low for at least the past 10 years. Currency value is one part of the explanation, in addition to the low US cow kill. As recently as October, imported 90CL beef was still trading at a 3pc premium over domestic US product.
The A$ has traded below US80c for the past month, cushioning some of the price effect into the US.
“Prices for US domestic lean grinding beef have not seen the kind of price erosion as in the imported beef complex,’ Steiner said in its most recent weekly report.
“Largely this reflects the fact that domestic supplies of cow meat remain limited. Fed slaughter also is down on weak packer margins and limited feedlot supplies.
Flat US consumer demand, waterside disputes, and lower prices for competing proteins also appear to be contributing to recent imported meat price trends.
US importers have indicated that it has become very difficult to bridge the gap between overseas packer offers and end-user views on price.
US foodservice demand is reportedly quite slow at present due to extreme weather in the heavily populated Northeast. Reference yesterday’s media reports of record low temperatures in parts of the US. Ice storms across the South and cold weather are also seen as negatively impacting both transport and overall demand.
Some US end-users also are struggling with weak sales due to an apparent shift in consumer trends, Steiner says.
“Lower prices for competing meats, especially pork, have affected the way US end-users are approaching market promotions going into spring. At this point end-users are opting to sit on the sidelines, unsure how sales will develop in the next two to three months,” it said.
Port dispute nears end
One trade factor which may now start to clear is the prolonged waterside dispute on the US west coast, which now appears to be reaching a resolution.
The dispute has affected both beef entering and leaving the US, hampering US exports to Japan and elsewhere, as well as limiting incoming access. The port blockages on the west coast are resulting in meat that would have been exported being redirected to the domestic market, further bolstering available US beef supplies.
News this week suggests the Pacific Maritime Association and the International Longshore and Warehouse Union reached a tentative agreement on a new five-year contract covering workers at all 29 US West Coast ports, following go-slows in place since November.
It remains unclear how long it will take to clear a cargo backlog that has left produce rotting because it couldn’t be loaded on ships, and retailers frustrated at not receiving needed imported shipments.
A good part of the current soft US demand was seasonal, Steiner’s latest weekly imported beef report says, as foodservice sales tend to be weak at this time of year.
“Some end-users also have faced additional challenges with slower than expected sales, which tends to make long inventories even longer,” the report said.
“Prices for competing meats also are down and sharply lower futures prices act as a brake on purchasing, causing end users to shorten up their buys and only focus on immediate needs.”
Meat & Livestock Australia notes that the US meat supply chain appears to have undergone a swift turnaround, with forecasts for production and prices in 2015 changing dramatically since the end of 2014.
“Firstly, the outlook for beef supplies in the US in 2015 has increased sharply, with an upward revision in the size of the US cattle herd serving as the base. The larger number of cattle on hand, particularly cows for breeding, has resulted in the USDA suggesting US beef production will be steady on 2014 levels, rather than dropping further, as was previously expected,” MLA said.
Poultry and pork supplies are still forecast to increase significantly on 2014, largely as a result of both industries getting past blockages to their productivity (PEDv virus for pork and breeding/weather issues for poultry).
Pork prices have dropped sharply so far this year, while poultry has maintained prices relatively well, although both remain well below beef prices, which will have a negative effect on beef and cattle, MLA said.
In addition, the strengthening US$ is also expected to be a hindrance to US meat exports, which has positive and negative effects for Australian exporters – positive in terms of competition to other markets, but negative in terms of competition into the US.
The USDA still has not revised cattle prices down significantly for 2015, with the average steer price still forecast to be 1.5pc–8pc higher than the 2014 average.
The US futures market for fed steers, on the other hand, has fallen sharply, pricing the market much lower – although this has been volatile in the last year, and not necessarily a reliable indicator even 2–3 months out.
“The importance here is that there has long been a strong correlation between Australian cattle prices and those in the US beef market,” MLA said.
“Encouragingly however, the weakening A$ against the US$ has helped offset the impact in Australia, and while the US market is slipping, cattle prices remain in historically high territory,” it said.
“Although the declining US market may be of some concern to producers, the impacts of trade and currency are generally longer-term, while rain typically has a more immediate impact.”
“This was clearly illustrated the last time Australian cattle prices exceeded 400¢/kg, back in December 2011, when the A$ was above parity with the US, yet cattle availability was tight due to excellent feed conditions,” MLA said.