Concerns over potential trade tensions between China and the US has seen imported manufacturing beef customers in the US sit on the sidelines this week.
Steiner Consulting’s weekly imported beef report has the 90CL imported grinding beef price at 585.29¢/kg in Australian dollar terms, back 13¢ on the previous week.
“US imported beef trade was very slow to develop, with end-users apprehensive in the face of meat market uncertainty and sharply lower fed cattle prices,” Steiner’s report said.
“The market for imported beef continues to be quite difficult as extreme uncertainty in the broader complex and sharply lower fed cattle futures have made end users quite ambivalent about booking meat forward – at least not at current offer levels from Australia and New Zealand.”
There was some speculation in the market this week that traders were taking on some shorts, expecting to purchase product at lower prices in May when New Zealand slaughter is expected to increase.
The bearishness for second quarter prices, however, was contrasted with spot market conditions which remained quite tight, Steiner said.
Prices for domestic US lean grinding beef continued to trade relatively firm despite rather large US slaughter levels for this time of year.
“On the one hand, demand conditions appear to be in as good a shape as they were a year ago. Consumer incomes are up, the economy is near full employment and global demand for beef continues to expand. And yet a trade war between the US and China risks derailing the global economy and thus significantly impacting beef demand both at home and globally,” Steiner said.
In recent years China has emerged as a major global beef buyer.
This chart prepared by Steiner shows the breadth of Chinese beef purchases and the double digit growth last year. In many South American markets exports to China and Hong Kong now account for more than half of all their beef exports.
“Cattle inventories in South America continue to expand and producers there count on robust Chinese demand to support prices,” Steiner said. “But slower growth due to a full blown trade war could cause a slump in global beef prices.
“The concern among market participants is that if beef prices for round cuts do indeed collapse, this could push more cuts into the grinder. Indeed, prices for some US cuts are already are near grinding value,” it said.
“We expect US fed cattle slaughter to quickly climb to 500,000/week by the end of April and be as high as 540,000 in late May or early June. These projections reflect on feed supplies that are currently 9pc higher than last year. More fed cattle are coming and retailers will have plenty of opportunities to feature beef during the peak of the grilling season.”
Imported beef supplies
Australian beef shipments to the US in March were 19,742 MT, 10pc lower than a year ago. The decline came even as the overall volume of Australian beef exports in March was slightly higher than the previous year. More Australian beef is currently going to other markets, particularly in Asia, and the expectation is for the US share to decline this year. In the first three months of the year total Australian beef exports to the US were 49,830t, 2pc less than last year.
This volume represented 21pc of all Australian beef and veal exports during Q1. Last year shipments to the US accounted for 23pc of all exports and in 2015 the US share was 32%. Reduced Australian beef availability will be mostly felt in Q3, when New Zealand participation in the US market seasonally declines.
“Imported beef has traded at a premium to domestic in the US earlier this year,” Steiner said. “That premium may decline in May and June as New Zealand supplies increase. Still, we think domestic beef availability will increase at a faster pace and therefore we still expect imported beef to trade at a modest premium. That premium will likely increase in September and October when domestic retail ground beef demand starts to wane, domestic cow meat supplies increase while at the same time less imported beef is available from New Zealand and some of the smaller markets.”