Category: Cattle

Mid-January saw China and the USA sign off on phase one of a new trade deal, using pre-trade war volumes from 2017 as a benchmark for expansion in trade volumes. While it is still early days in the negotiation a key aim of the Trump administration is to get China to import more US agricultural products, with US beef and pig farmers excited by this prospect.

As part of the broader deal, China has agreed to increase purchases of US agricultural products with an aim to hit $US43 billion in trade value by 2021. In 2017 China imported less than $US25 billion of US agricultural products – the bulk of which was soybean to feed their huge pig inventory.

In terms of meat imports into China from the US the beef industry never really gained a foothold, with the US holding less than 1% of the market share of Chinese beef imports in 2017. US pork producers had a far better penetration with 12% of Chinese pork imports in 2017.

A comparison of meat imports into China (of all types of meat except fish/seafood) during the 2017-2018 period shows that US market share declined significantly compared to other key trading nations from 12.5% to 4.9%, due to the increase of tariffs imposed by China and growing trade hostilities – Figure 1.

The US market share of Chinese meat imports dropped by 60%. In contrast, Argentina captured nearly 60% more market share, while Brazil, Australia, and NZ all saw their market share increase by over 20% during the 2017 to 2018 period – Figure 2.

To hit the $US43 billion target in two years’ time there would need to be a significant shift in trade flows into China, with a clear preference for US product. In terms of pork and sheepmeat, this isn’t a huge direct competition for Australian producers as Australia doesn’t export significant volumes of pork to China and the US don’t really have a sheep/lamb export presence on an international level.

Historically, there have been a few barriers to entry into China for US beef producers, namely the lack of traceability and concerns around the use of hormone growth promotants. However, part of the trade negotiations agreed to this month was seeking to address these barriers and open a clearer path for US beef into China.

Remember to look out for our upcoming podcast delving further into this topic, including an assessment of the impact across a variety of Australian agricultural sectors – Figure 3. It is still in the recording studio at present, but you will be able to find the podcast by clicking the link to “Commodity Conversations” after Australia day.

What does it mean/next week?

Matters of trade are highly complex situations with many moving parts. Addressing the implications for the Australian agricultural sector of this new trade deal between the US and China is a topic too broad for a standard Mecardo analysis piece, but we will be discussing it at length in our podcast series entitled “Commodity Conversations”.

The abridged summary of our thoughts in relation to the impact on Australian sheepmeat and pork producers is that it is limited. In terms of the impact on our beef sector, the jury is out when assessing over the longer term. But in the short term, we don’t see any immediate risk to Australian beef flows into China from the US during 2020.

Just a month ago Cow prices were over 500¢, and almost the same price as the Eastern Young Cattle Indicator (EYCI).  This week cow prices continued to tank, while other cattle types largely held their ground.

Figure 1 shows state cattle indicators declining sharply since hitting a peak five weeks ago.  This week the Queensland Cow indicator fell a further 22¢ to hit a six month low. Dire weather conditions and another uninspiring forecast has seen cattle continue to move into the market.

Cattle slaughter hit another peak last week, moving to new highs not seen since 2015 (figure 2).  Yardings were lower last week on the back of the lower prices, but they are still very strong for this time of year.  This combined with plenty going direct, means processors don’t need to bid up at saleyards for supply.

Adding further price pressure was falling 90CL export prices.  After peaking at 968¢ two weeks ago, the 90CL has fallen 40¢, but figure 3 shows it is still way above historical levels.  The falls were largely due to buyers taking a break after Thanksgiving, but Steiner report there was little business done.

In WA cattle prices moved in opposite directions for young and old cattle.  The Western Young Cattle Indicator (WYCI) fell 37¢ to still a quite respectable 527¢/kg cwt.  Cow prices in the west were up 8¢, to 207¢/kg lwt.  Cows in the west are now at a premium to the east coast.

Next week

There is no rain on the forecast leading up to Christmas, which isn’t great news for prices.  We often see a large shift in cattle prices between years, as it either rains or it doesn’t.  Good northern rain would obviously see a strong move upwards, but forecasts don’t look promising.

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.

US-based consultants Steiner, published by Meat and Livestock Australia, report a surge in the 90CL imported beef export price as panic buying sets in under strong African Swine Fever (ASF) induced demand pressure. Despite the big leap forward in the 90CL, domestic Australian cattle values softened across the board this week as the poor outlook for rainfall continues to bite.

The 90CL imported beef export price jumped 14% from 840¢ to 960¢ as both US and Chinese buyers fight it out for access to Australian and New Zealand manufactured beef products (Figure 1). This price point is well and truly into record territory for the 90CL and it pushes the spread between the Eastern Young Cattle Indicator (EYCI) and the 90CL to a record discount, on a cent per kilo basis.

Figure 2 outlines the historical spread between the EYCI and the 90CL in both ¢/kg and percentage terms. The sharp rally in the 90CL puts the discount at 443¢/kg, the widest it has ever been. Indeed, it was back in November 2014 that we saw the discount between the EYCI and the 90CL at anywhere near the current level when it blew out to a 351¢ discount spread during the midst of Australia’s last significant drought event.

However. a more accurate reflection of the magnitude of the discount spread is to measure the gap between the EYCI and 90CLl in percentage terms (as shown by the grey line on Figure 2). The current percentage discount spread has widened significantly to 46.1% but is yet to reach the record 51.6% discount recorded during November 2014.

Young cattle prices within Australia failed to respond kindly to the surging export market with the EYCI easing 4.25¢ to close at 512.75¢/kg cwt. A sentiment mirrored across all MLA reported categories of cattle across the eastern states this week with price drops ranging from 1.5¢ for Yearling Steer to 21¢ for Medium Cow.

Next week

Hampering the ability for domestic Australian prices to fully benefit from the rampant offshore demand for beef continues to be the poor outlook for rainfall in the coming month (Figure 3).

An expected delay to the northern monsoon season continues to see Queensland suffer under a very low expectation of exceeding normal rainfall levels for this time in the year, and this is particularly true for the far northern regions.

Cattle supply has shown no signs of slowing in recent weeks, with slaughter still running hot, but prices continued to rise.  As outlined earlier in the week, supply is outstripping demand at the moment, forcing counter-seasonal price rises.

Cattle slaughter has been steadily rising over the last month, and last week hit a four month high (figure 1).  It was no surprise to see NSW driving slaughter, recording its second highest week since 2015.

Despite the stronger slaughter, the market keeps on rising.   Even the Eastern Young Cattle Indicator (EYCI) has been rising, without any real rain.  Processors might move into the young cattle space to get beef to supply export markets.  Yesterday the EYCI moved to 517¢/kg cwt, the highest level since August.

The headline cattle indicator this week was the Medium Cow, which on the east coast made a 3 year high of 251¢/kg lwt.  A very tidy 23.5% increase on the same time last year.

It was export beef prices driving cattle prices again this week.  A further 21¢ rise in the 90CL took it to 840¢/kg cwt.  It’s not just lean trim which has found some strength.  The 75CL price has gained 28% on the same time last year.  In the coming week, we’ll see if we can find some prices for higher value beef cuts.

In the West young cattle are priced better, with the WYCI at 547¢/kg cwt, but cows are well behind at 197¢/kg lwt.  Supply is usually good at this time of year, but when it tightens cow values in the west should at least match those in the east.

Next week.

There is no rain on the short term forecast, and a largely dry outlook for the summer (figure 3), so further price rises are dependent on processor and feeder demand.  This week’s processor margin article showed there is still some room for cattle prices to move higher, but while supply continues to flow upside will be limited.