Category: Business

Some good weekly price gains were noted for the MLA CV-19 cattle indicators this week as a continued situation of tight domestic supply and improved offshore markets underpin local sales.

East coast cattle throughput levels have been rising from the seasonal low registered in April. However, compared to the five-year average trend and the 2019 pattern, yarding levels remain well below the normal situation (Figure 1).

During May, weekly east coast cattle yardings averaged 30% below the five-year pattern. Compared to 2019 the picture is even tighter, running 38% under levels seen this time last year.

Similarly, east coast cattle slaughter volumes show a tight result too. Since early May, weekly slaughter figures have continued to ease, drifting outside the lower end of the normal seasonal range. Indeed, the average weekly slaughter volume for May now sits 13% below the five-year average trend (Figure 2).

Across in the USA, the supply picture remains tight as well, albeit for slightly different reasons. Steiner report that the US Fed Cattle slaughter levels remain nearly 30% below this time last season, as processing plants still grapple with the supply chain impacts of the COVID-19 pandemic.

The tight conditions in the US providing some good support for the imported 90CL frozen cow indicator to see a strong increase on the previous week, up 4% to reach 804.2 AU¢/kg CIF – the highest it has been this year (Figure 3).

In further good news for global cattle market sentiment, the US Live Cattle Futures price has rebounded 22% from the seasonal lows seen in late April to trade just a fraction under 100US¢/lb this week. For those subscribers that managed to see the COVID-19 webinar (still available on MLA’s Youtube Channel) I participated in last month, they would recall that getting back above the 100US¢/lb level is crucial for longer term support into the Australian market. So, it is good to see some price improvement returning.

Local CV-19 cattle indicators are all benefiting from the tight supply and improved offshore situation with the National Yearling Steer leading the charge, up 11% on the week to 393¢/kg lwt. Medium Steer, Feeder Steer and Finished Steers are all putting in a good show too, up 7% (331¢/kg), 5% (377¢/kg) and 3.5% (349¢/kg), respectively.

Next week?

Tight supply, improving offshore prices and a good rainfall outlook heading into winter all play into the hands of cattle producers currently. This should continue to provide support to domestic cattle prices into the short term.

Continue to keep an eye on the US Live Cattle Futures price as the ability for it to gain a strong foothold above 100US¢/lb into the medium to longer term is key to keeping local prices underpinned.

Key Points

• There are 5.1 million dogs in Australia. One for every 4.9 people.
• The theoretical dog food demand is 451kmt.
• This comprises 135kmt meat, 142kmt cereals and 142kmt animal byproducts.

I was pawndering the value our canine friends had on the grain market.  So now is a good oppawtunity to do some ruff calculations on the impact of dogs, and put a new leash of life on supply and demand. Let’s get into the ultimutt review of man’s best friends dinner.

Animal Medicines Australia is the peak body representing the leading animal health companies in Australia. They produced a national survey of pets in Australia (2019) which highlighted that there were a whopping 5,104,700 dogs in the country. That represents 1 hound for every 4.9 humans.

There are many different breeds ranging in size from the diminutive chihuahua to the gargantuan great dane. Therefore, its necessary to work what is the average size of an Australian dog. This is where the Australian National Kennel Council helped. They produce an annual report on the number of animal registrations for their membership on a per breed basis, which represents 67,900 dogs.

The Australian National Kennel Council is the administrative body for pure breed canines in Australia. It would be logical that their registrations would be representative of the overall population.

However, this dataset does not include the weights of each breed. So to provide a robust analysis for our readers I spent my night finding the average weight for each of the  220 breeds of dog listed. I was then able to produce a weighted average of dogs to determine what is the average dog weight. Through an analysis of the 2010-2018 year average, the weight is 22kg per dog.

The feed requirements for dogs are based on a conversion of grams of food per kg of bodyweight. There are numerous levels quoted by different manufacturers, however I have opted to go with 11g per kg of bodyweight.

On our average dog size of 22kg, this amounts to 242g of food per day. Across our average population of dogs this is a whopping 1235mt of food fed to dogs every day or 451,000mt per year (figure 1).

A highly esteemed pet food expert informed me that pet food sold in Australia is roughly on a 70% dry to 30% wet (canned meat) basis. Additionally, the composition of dried products is approx. 45% cereals and 45% animal by products.

We can then refine this further into three main dog food elements:

• 135,300mt of meat in the form of canned products
• 142,000mt of meat byproducts
• 142,000mt of cereals*

It must be noted that this is a theoretical feed demand for dogs in Australia. There are a few caveats to this analysis:

• Not all dogs eat store bought food. This analysis does not consider the feeding of food scraps etc.
• Although the local demand is theoretically >450kmt, there are volumes of pet food imported into Australia.

*Cereal incorporates wheat, sorghum, corn, rice, barley and byproducts (soymeal etc).

What does it mean/next week?:

Pet food is an oft-forgotten industry in Australia. However, this analysis shows that they are an important part of a diversified agricultural supply chain.

As we potentially move into a future with more home-based working, we could see an increase in the dog population as workers look for company at home.

If we want to decrease our reliance on agricultural exports, we should consider supporting great dane breeders. As a move to a 100% great dane population would increase demand to approx. 1.5mmt per year.

The last week has seen some good news on the export front, with increasing volume to China, and some bad news, with the suspension of some plants. The news from the US was more positive this week, and while it’s not responsible for local price rises, it helps.

Despite the suspension of four beef processors from exporting to China this week, prices managed to gain ground. The Heavy Steer was the star performer, with the CV-19 National Indicator gaining 15¢/kg lwt, to get back to 335¢/kg. This week’s move puts the Heavy Steer back within 10¢ of the all-time record set back in March.

Cows and Feeders also gained ground, although they weren’t quite as strong (Figure 1). Tightening supply is no doubt helping prices higher, both at saleyard and over the hooks level, but improving export prices are playing a part.

Figure 2 shows the 90CL Indicator has lifted in both US and AUD terms (Figure 2).  Steiner report that many US users are short stock, as they took a wait and see approach in April, and now need to stock up.  Additionally, US Cow slaughter has been down, as with all cattle, and lean beef in general is in short supply.

The backlog of overfed cattle in the US might see continued lower Cow slaughter and provide some support for our exports over the medium term.

Despite the cattle backlog, US Live Cattle Futures bounced higher this week, moving back its highest level since mid-March.  More positive signs of some resilience of beef and cattle demand.

Next Week.

It is hard to see cattle supply improving as we move toward winter.  In fact, it should get tighter.  Stronger export prices will be required to see prices keep rising in a similar trend to the last couple of weeks.

Key Points

• MLA’s Cattle Industry Projections update shows even tighter supply in the coming years.
• The herd rebuild is expected to be a bit quicker with better seasonal conditions.
• Tight supply should support prices, but demand is highly uncertain.

Meat & Livestock Australia (MLA) have updated their cattle industry projections for April, with the key factor being going from hoping for a break in the drought, to actually receiving some rain. The updated outlook suggests a faster herd rebuild, but it’s going to cost in terms of cattle supply for the next.

The cattle herd is still expected to set an unwanted record on the 30^th of June, but now the forecast is set to be slightly higher than previously thought. The updated Cattle Industry projections peg the herd mid-year at 24.8 million head.

Figure 1 shows the herd projection for this year is 100,000 head higher than the January projections. While this is minuscule in the scheme of things, it is a reflection of tighter slaughter in the first quarter of 2020.

Out to 2023, the improved seasonal conditions have seen herd levels revised from 1.8 to 2.5% higher. Despite the higher herd projections, we are still set for a 27 year low for the herd this year. It is also expected to take until 2022 to get back to herd levels of last year, and even in 2023 it won’t quite be back to 27 million head.

To achieve a faster rebuild of the herd, there have to be fewer cattle going to slaughter.  MLA’s have adjusted cattle slaughter down in all projection years except 2023. The biggest declines are expected this year and next, with projected slaughter down 4.2% (Figure 2).  This year cattle slaughter is expected to be 6.9 million head, a 24 year low. A new low water mark is forecast for 2023, with 6.8 million head the lowest since 1989.

Cattle slaughter is expected to remain relatively tight in 2022, still under 7.5 million head, and only returning to the ‘normal’ levels of most of the 2000-2010 period in 2023. Figure 2 clearly shows the boom and bust cycles for the last 10 years, with droughts and strong slaughter followed by wetter periods and very tight supply.

What does this mean?

It should be relatively comforting for cattle producers that while we are entering a period of uncertainty in regards to demand, tight supply will at least offer some support for cattle prices.  At what level is something we’ll look at next week.

There is even some time for demand to recover, and help values rise before supply will be back near what could be considered ‘average’ levels.

Improved finished cattle prices were noted this week as supply metrics begin to normalize, particularly for east coast cattle slaughter. Department of Agriculture, Water and Environment beef trade statistics for April show Chinese demand for Aussie beef recovering strongly too as an added positive sign for producers.

East coast cattle yarding levels have held firm at around 45,000 head for the final week of April and the first week of May, indicating some stability is returning to the market after some wild swings pre-Easter (Figure 1).

Weekly throughput remains 20% below the five-year trend but is within the normal range for this time in the season, as represented by the grey shaded 70% range zone. In an interesting dynamic between state yarding levels, Queensland is running 25% above the five-year trend as of early May. However, NSW cattle yarding is well below normal at 53% under trend. This is contributing to the lower than average total east coast figures and is perhaps a sign of the appetite in NSW from producers to restock.

East coast cattle slaughter numbers have returned closer to the five-year trend, to sit just 5% below with around 135,000 head processed in the first week of May (Figure 2). Since the Easter lull, slaughter volumes have increased 27% and the return to relatively normal operations have seen demand pick up for finished cattle this week. The National Heavy Steer (CV19) indicator has lifted 4.5% since the end of April to close at 320¢/kg lwt (as at 6^th May).

In further promising signs for beef producers, beef export flows were above the five year average pattern in April (Figure 3). While US flows remain very subdued, a strong increase in exports to China is a good sign that their economy is getting back on track post their COVID-19 shutdown. There will be more to come on this in the Mecardo analysis piece next week.

Next week?

Tight supply and a favourable rainfall forecast continue to favour cattle producers and provide underlying support to prices. While there are headwinds in the form of a disrupted US/global economy, low global cattle prices, and a strengthening Australian dollar, the sign of a re-emerging China should tip the balance towards a more optimistic outlook for prices, at least for the short term.

Key points:

• The monthly flow of Australian live cattle exports for the first quarter of 2020 are running 28% above the average seasonal trend.
• Flows to Indonesia during March dropped to nearly 10% below their normal seasonal levels, according to the five-year average trend.
• Exports to Vietnam during the January to March period have averaged 189% ahead of the five-year trend, lifting market share of export volumes to Vietnam markedly in 2020.

Live cattle export flows have been strong for the first quarter of 2020, despite Covid-19 disruptions. Although there has been a noticeable shift in market share with Indonesia giving up ground while Vietnamese demand expands.

Figure 1 highlights the total flow of live export cattle for the start of the 2020 season compared to last season and the five-year trend. Average monthly flows for the first quarter of the year are running 28% above the seasonal trend with volumes near the upper end of what is considered “normal” for this time in the year (as outlined by the grey shaded 70% range).

After a strong result for February at 96,174 head volumes have eased 14% in March to record 82,468 cattle sent with flows to Indonesia nearly 10% below their normal seasonal levels, according to the five-year average trend for March.

However, total flow volumes were boosted by stronger than average exports to both China and Vietnam. Over the first quarter of 2020 live cattle exports from Australia to China have averaged 73% ahead of the five-year seasonal pattern.

However, the real growth has come from Vietnam as flows over the January to March period have averaged 189% ahead of the five-year trend – Figure 2. Indeed, the growth in the Australian live cattle trade to Vietnam has been robust enough to see a significant lift in market share this season.

During the 2015 to 2019 seasons Vietnamese market share averaged 20%. This has lifted to 34.5% during the first quarter of 2020 and has come at the expense of flows to Indonesia, currently in the grips of a Covid-19 pandemic – Figure 3. Indonesian market share has averaged 53% over the 2015 to 2019 seasons and has dipped to 39% for the first quarter of 2020.

What does it mean?

At Mecardo we have regularly commented upon the fine work Meat and Livestock Australia have achieved in our red meat export space for chilled and frozen product helping to diversify the reach of the sector and creating high value markets for Australian producers across a range of offshore destinations.

Diversification of a customer base is a useful way to bring increased stability to an industry with less reliance on one key destination. It is comforting to see the volume of exports of live cattle continuing to expand in Vietnam, particularly at a time of significant global uncertainty.

The important role of wet markets has been discussed in the rural press recently. They perform a crucial role in food security and access to meat protein for developing countries where access to cold store in home and reliable electricity isn’t like we enjoy in the first world.

Growing diversity in the live export sector continues to support food security and wet markets in our key trading partner’s countries and is a valuable segment of the broader Australian red meat sector.

Key points:

After battling with drought for over two years Australian cattle producers are currently the envy of global cattle producers.  In the US most notably, but also in South America and Europe cattle prices are tanking, while ours remain in the upper echelon.

Earlier in the week, we looked at US cattle values, with bottlenecks depressing prices now, and likely for most of the year as supply backlogs are cleared.  In South America, uncertainty and falling kill rates have also impacted price, but not the extent of the US yet.

Here cattle markets have remained relatively resilient.  No doubt the post-drought tight supplies, and strong demand from restockers has helped on the east coast, but in WA prices remain similarly strong.  In fact, the MSA Yearling is at 590¢/kg cwt, over the hooks, which is a few cents higher than NSW.

Supply hasn’t improved after the Easter break, last week languishing well below average on the east coast (figure 1).  There are no surprises here, with tight supply being exacerbated by a shift to online selling.

With supply down, demand has eased somewhat to match it.  After the initial fall, saleyard prices have steadied (figure 2).  Historically cattle prices are still very good, with the National Heavy Steer Indicator at the 89^th percentile, Feeders at the 88^th and Cows at the 83^rd over 15 years.  Prices have been a lot better in recent times, but historically prices this strong are a rare occurrence.

Meat and Livestock Australia (MLA) released their cattle projections this week, and it seems cattle supplies are going to stay tight.  Next week we’ll have more on what this means for price.

Next week.

If the southern autumn break hadn’t arrived, it did this week.  Figure 3 shows widespread rains in all key southern cattle areas this week, and this is likely to ensure supply remains tight.

Young cattle demand is unlikely to weaken, but store prices can only hang on as long as finished cattle prices stay at solid levels.  The finished market test will come when US slaughter ramps up again, and we see some real price competition in Japan and Korean markets.