Wholesale trade: Big kills haven’t led to dumping on domestic market

Jon Condon, 27/02/2014


One of the extraordinary features about the current passage of extreme high beef kills across Eastern Australia is just how little the domestic wholesale market has been affected.

In past times, runs of heavy kills often spelled trouble for the domestic wholesale supply chain, upsetting export supply/demand equilibrium with product backing-up in chillers and ultimately being discounted into the domestic market to clear it.

Regular readers will be familiar with Beef Central’s reports over the past eight months of all-time record weekly kills, and beef production.

But wholesalers contacted this week said that there’s no real signs of excessive build-up of stocks in cold storage presently.

One of the nation’s largest wholesalers with a strong footprint in the three largest Eastern States said the salvation this time has been new and emerging markets like China, the Middle East and Indonesia that have ‘sucked-up’ a lot of that surplus production, and prevented it defaulting back into the domestic trade.

“They’ve taken up that abundance of forequarter and butt cuts. The only lines that have got a little bit wobbly in the wholesale trade, at this point, due to such heavy supply is items like cube rolls,” he said.

That wasn’t uncommon for this time of year, as barbecue season starts to draw to a close. Another factor is that February is notoriously a tough month for both domestic food service and retail.

“Kids are back at school; there are school fees, books and uniforms to pay for, and every bill under the sun seems to arrive in February,” a wholesaler said. “Consumers tend to slow down, don’t eat out so much, and watch their household budgets, and that impacts on beef in both volume and cuts choice,” he said.     

Those alternate export markets like China and Indonesia had also proven ideal for absorbing the ‘type of kill’ Australia had been producing since the drought set-in, with a lot more cow-meat and lower grade meat present.

Record high grinding beef prices in the US (see yesterday’s report) had also helped underpin demand for this type of product. While there was big volumes of cow meat on the market at present, record 90-95CL prices in the US meant there was a ‘bottom in the market’, a leading wholesaler said.

“With those low-grade or cow rumps, if you can’t get a certain price for them as muscle meat, they’ll go straight into the grind,” he said.

“There’s been enough traffic, with other markets like Indonesia buying a few consignments of knuckles, rumps and other cow cuts, it’s helped manage those heavy supplies of lower-quality cuts coming through.”

China key role as a 'sponge'

It had been somewhat fortuitous that Australia’s high rates of kill of older cows, for example, had been overlaid by the growth in export markets like China, where quality expectations were not as high as some other export destinations.

China has managed in a matter of 18 months to become one of the largest beef importers in the world. Its total beef imports from all destinations were running at less than 1700t/month in 2011 and the first half of 2012. In the last six months of 2013, however, Chinese beef imports averaged about 28,000t month, with Australia responsible for close to half of that figure.

The increase in imports has made China the third largest market for Australia, soaking up much of last year’s huge increase in production. And it’s not only happening in Australia: China is also now the largest export market for Uruguay, for example – the only South American exporter with ‘front-door’ access to the market.

Crucial time ahead

If there is a risk of accumulation of stocks in cold storage, it could happen over the next couple of months, trade sources said yesterday.

Some of the busy export demand-influences like Golden Week in Japan, the end of the EU quota year at March 31, and Chinese New Year have now either passed, or are close, which could deliver a temporary lull, possibly triggering a short build-up in meat.

“The sheer volume of beef currently being produced in recent weeks could also impact on beef stocks,” the wholesale contact said. Items that could perhaps be a little protected from that could be chucks, blades, topsides and knuckles, because of that strength of the US grinding market.

The US national fed beef kill was only 540,000 last week, very small by seasonal standards, which would also help support imports of secondary cuts, trim and grinding beef.

Prices soften $1-$2/kg

Looking ahead, if there is any real widespread rain relief before winter, the volume of lower quality beef coming forward will decline, and there could be a lot more grainfed beef in the mix.

That could put some pressure, domestically, on grainfed meat, our wholesale contact said.

“Currently, the difference in price on round cuts and forequarter cuts has more or less caught up, between grain and grassfed. It’s because there is no great distinction in quality in many segments of the China market, for example,” he said.

“We can currently get $6.70/kg for a cap-off topside, almost regardless of whether it is Steer, PR, YG, or grainfed GF. Volume demand has a lot to do with it.”

The wholesaler said on the domestic front, the segment the industry had to be careful of was loin cuts, moving into winter.

“Wholesalers need to be careful they’re not left with a heap of loin cuts that may become harder to shift. People need to make sure they’re competitive on their price, and stay current.”

“There may be a change of revenue stream. Some years you get your loin cuts and rumps up a bit in price, while other cuts drop a little. There just might be a changing of the guard a little, but don’t be slow about doing it, is my advice.”

Loin cuts are currently coming under pressure a little price-wise, and that may only intensify once major supermarkets pull back on PR and Steer meat specials as part of their ‘Everyday’ budget lines, expected around Easter.

For cube roll, lower grade lines are current wholesaling in the +$7/kg range, cow cube rolls $8-$9/kg, depending on weightrange, steer (cipher S) $11s, PRs up to $12-$13, with a step-up then into yearling cubes +$14, and MSA steer and heifer $15s-$16s.

All those prices have come under pressure of recent times in the wholesale marketplace, softening at least $1 and in places $2/kg. Similarly, tenderloins are being pressured, coming towards the end of grilling season at home, and as home-use and food service outlet menus start to change.

Most of the MSA grilling cuts were now 50c to $1/kg off where they sat earlier.

The outlook for grassfed MSA supply, especially out of Queensland (the biggest producing state), was ‘as hard as hell’ over the next six months, given the current seasonal circumstances, the processor contact said. Fortunately grainfed MSA was in good quantity, due to the number of drought cattle heading into feedlots.

The general outlook for the domestic wholesale market in 2014 was ‘another tough year,’ Beef Central’s contact said. “There’s not a lot of wildly confident signs on the horizon yet for the economy,” he said.

As evidence of the tough trading environment, two large high-turnover retail butchers closed their doors in Brisbane last week. One was Patton’s Big Gun, a price-driven bulk butcher which operated four large retail outlets at Underwood, Gold Coast, Victoria Point and Aspley.

There is no information provided yet on creditors, although some large wholesalers have been reluctant to trade with the company for some time.

A second retail business at Redcliffe also closed its doors last week.

One of the confounding points in the wholesale/retail market at present is the ongoing retail price war between Coles and Woolworths. Regular mince is still selling in Australian supermarket shelves at a loss-leading $5/kg, at the same time that equivalent 85-90CL grinding beef (frozen) is selling, wholesale, into the US for $4.60-$5/kg.

One large supermarket is known to have bought chilled cryovac trim out of the broader market recently for $5/kg, to top-up the company’s own production, and putting it on a tray, in ground form, in-store, for $4.99 retail.  Go figure.




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