Year: 2019

There have been no real movements in strong export beef prices in recent weeks, but cattle prices have been on the decline in saleyards.  It seems slaughter capacity might have been reached, and with processors booked up until Christmas, demand at saleyards is on the wane.

As we move into December the season definitely hasn’t improved in a lot of areas, and the cattle keep flowing.  Cattle slaughter reached a six month high a fortnight ago and is still bumping up against four-year highs.

Figure 1 shows the last time cattle slaughter was this consistently strong on the east coast was in 2015.  Interestingly, the EYCI at this time in 2015 was 600¢, showing the difference restocker demand can make.  Heavy steer and cow prices were similar to what we are seeing now, but margins for processors were much tighter.

We can see in figure 2 that at the end of 2015 the EYCI and 90CL Frozen Cow were priced around the same level.  Now the 90CL is at a 450¢ premium, not quite double the EYCI.

Slaughter capacity has been up to 11% higher in the past, but processors are no doubt reluctant to invest in opening up more kill space given the declining herd.  A good rain will see the supply of all cattle types tighten, and would mean processors would face the costs of closing down the extra space.

Cattle prices were down across the board last week, with declines between 10 and 30¢/kg cwt.  This might see supply tighten, and have growers waiting until the New Year.

Next Week:

There is yet again no rain on the forecast, and the outlook remains bleak for the next three months (figure 3).  It doesn’t mean it can’t rain, but it is still more likely to be dry.  Cattle can’t keep coming forever, and it is likely we’ll see things tighten and prices steady in January.

Beef export figures for November are out, and we are getting a picture as to why export prices have been running rampant. While the total supply of beef for exports declined in November, it didn’t stop China from posting yet another record import level. 

Cattle slaughter was still relatively strong in November, so it is likely the cattle were lighter.  November beef exports were down 9% in October, but up 9% in November 2018.  In fact, November exports have only ever been higher once, in 2014.

Declining export volume didn’t stop China from taking yet another record amount. Figure 2 shows China was easily the biggest market for Australian beef, taking 33%. The comparison numbers again show rapid growth. The 34.2 million tonnes exported to China (figure 2) was up 12% in October and 134% in November last year.

With 90% of the beef exported to China being frozen, it is pulling more and more beef away from the US. Figure 3 shows declining US exports, with November being down 37% on last month and 14% on last year. Exports in November were also the lowest for that month since 2016, when total supplies were much tighter.

The US share of exports was 26% back in November 2016, and just 13% last month. This share was the lowest since 2010. There is not a glut of beef in the US, they are still very much chasing our exports. It seems that China simply has more money for beef at the moment.

Japan and South Korea managed to maintain their share of our beef exports, but in general, they are after more expensive cuts of beef.  With manufacturing beef prices still rising, there might be some better cuts going through the grinder.

What does this mean?

We’ve been following the rising 90CL beef prices over the last month and the rally in price fits nicely with export flows. The reports of US buyers scrambling for beef in a rising price environment shows up in much more beef going to China and much less to the US.

The market is still waiting for Chinese beef demand to flatten out, and see some sort of equilibrium reached in export markets. At present, however, things are still highly uncertain.

The October release of LiveCorp live export cattle flow shows a steady gain in volumes since August. This analysis piece looks at the breakdown of the trade with a focus recent changes to the flow to key export destinations and ports of exit.

The monthly flow of live cattle has reached its highest point this season in October at 117,511 head, mirroring a similar magnitude surge during October of 2018 (Figure 1). This places live cattle export volumes 21% above the five-year seasonal average trend for October.

Fueling the increased flow of Australian live cattle exports in recent months has been a resurgence in demand from Vietnam between August to October. Indeed, for the August to October period, the flow of Australian live cattle to Vietnam has averaged a 69% increase in the five-year seasonal pattern (Figure 2). In contrast, Australia’s largest live cattle trade partner, Indonesia, has demonstrated 10% higher flows over the same timeframe.

The changing dynamic of the live cattle trade isn’t just limited to destination points. Similarly, there has been a noticeable change in exits ports from Australia in recent years. Townsville has seen a steady rise in live cattle departures, pushing Queensland’s market share of departures from 24% in 2018 to 27% in 2019. Although, this has come at the expense of ports in the remaining key live cattle export states of the Northern Territory (NT) and Western Australia, down from 37% to 31% and from 21% to 19%, respectively (Figure 3).

Historically there has been a preference for live cattle exports from the NT to favour an Indonesian destination when assessing on both a volume and percentage of trade basis. Whereas flows out of Queensland favour Indonesia on a volume basis but is heavily geared towards Vietnam when comparing it by the percentage of total trade to each destination.

In the last five years (2014-2018), the volume of live cattle from the NT to Indonesia has averaged nearer 300,000 head per year, compared to 60,000 head into Vietnam. This equates to 55% and 30% of the total Australian live cattle trade flow to Indonesia and Vietnam, respectively.

During 2014-2018, Queensland has averaged 140,000 head to Indonesia and 89,000 to Vietnam. This equates to 26% and 43% of the total Australian live cattle trade flow to Indonesia and Vietnam, respectively.

What does it mean?

Given that Indonesia takes the lion’s share of Australian live cattle exports it is unsurprising that on a volume basis it is an important destination point for all export ports in the north of Australia. However, the importance of Vietnam as a key destination point for Queensland based cattle departures cannot be underestimated.

Certainly, the recent growth in Vietnamese demand for live cattle has underpinned the resurgence in flows from the port of Townsville. Indeed, average monthly flows from Queensland during the August to October period are running 147% above the five-year trend.

Cattle prices continued to ease this week in the face of more rises in export markets. There is little doubting the driver behind lower saleyard prices, with the season yet to break and relatively strong prices drawing out supply.

It’s always about supply and demand. In the last couple of weeks, it has been increasing supply overwhelming strong demand. Figure 1 shows east coast cattle yardings hit 80,000 head last week.  Cattle yardings have only been this high once this year, back in April.

In fact, cattle yardings have never gone over 80,000 head in the spring. The numbers are quite remarkable given the declining herd, but strong prices and little feed are pushing cattle into yards.  No surprises that NSW and Queensland are leading the strong yardings, both up 31% and 68% on last year respectively.

With the heavy supply, it is improving demand, from the more increases in export prices, which is stopping cattle prices from really tanking. The Eastern Young Cattle Indicator (EYCI) lost another 10¢ this week to hit a five-week low of 504¢/kg cwt (Figure 2).

Heavier cattle categories took more of a hit. The National Heavy Steer and Medium Cow Indicators fell 47¢ and 48¢ respectively. Having hit 3-year highs recently, supplies are likely to have picked up in saleyards as growers try to take advantage of the highs.

The 90CL Frozen Cow indicator gained another 12¢ in our terms to post yet another record of 972¢/kg cwt.  In US terms, it hit the magic 300¢/lb, surpassing the September 2014 record. Never has cow beef been more expensive in the US, at least in nominal terms.

Next Week:

There has been a bit of precipitation about this week and there’s a bit more on the forecast. Given the much lower prices this week, we might expect as sharp a pullback in supply and steadier prices.  Some rain would obviously help find support and there should be some upside.