Tag: Cattle

Last week we spent a couple of articles looking at the interesting price phenomenon that we are currently seeing in lamb markets.  Strong prices continued last week, in the face of strong supplies, so today we take a look at the export data to see where the extra lamb is going.

Meat & Livestock Australia seem to be having some issues getting slaughter data out of some NSW and Queensland plants, and as such we are currently being denied total weekly slaughter data.  We do know, however, from what we can see in Victoria and SA, and saleyard yardings, is that supply remains stronger than last year.

Prices remain around 600¢ for lambs, which is similar to last year, but it was this week in 2016 that prices started their seasonal dive.

Figure 1 shows that the extra lamb supply we have seen hit the market since June is being soaked up by export markets.  The increase has been diminishing, with September exports sitting 13.4% above last year.  The three month total increase for July to September is 25%.  Interestingly lamb exports for the last three months are not a record, falling just 0.75% behind the levels of 2014.

A simple indication of increased demand is the fact that in 2014 the Eastern States Trade Lamb Indicator (ESTLI) averaged 459¢/kg cwt from July to October.  This year the ESTLI has averaged 604¢/kg, 31% higher.

Pinpointing the source of increased demand is a little difficult.  Lamb exports for July to September were up 38% to the US, 21% to the Middle East and 36% to Asia.  These three destinations have accounted for 83% of lamb exports for the year to date (figure 2), so it’s safe to say demand is up in all our major markets.

It’s also not exchange rates driving stronger demand from export markets.  Figure 3 shows the ESTLI in US dollar terms, and while it’s not at record highs, it hasn’t been this strong at this time of year since the very tight supply of 2011.

We are left with the fact that all our major lamb markets are buying more lamb, and seemingly paying more for it.  This is the key indication of stronger demand.

What does this mean?

We have in the past seen significant jumps in lamb demand from exports markets, and we might now be seeing early indications of the next one.  Significantly larger export volumes, coinciding with similar or stronger prices suggests that consumers in the US, Middle East and Asia have become comfortable with the higher lamb prices seen over the past nine months.

This bodes well for future lamb prices, as increasing supplies are unlikely to push the market as low as it got last year, with a 550¢ floor a possibility.

There was a significant jump in yardings this week, but this failed to dampen cattle prices, which continued to rally.  In fact, it seems to be rain that is doing the opposite of dampening prices, with prices finding strength, almost across the board.

Figure 1 shows a 61% lift in east coast cattle yardings, but this still remains below the very strong levels of September.  In fact, the lift in yardings is likely to be more due to the public holiday in the previous week, with a bit of a backlog of cattle hitting the market now. Yardings this week of 40,044 head on the east coast were however well below the five year average.

This suggests that producers are holding back cattle in response to recent rain.  For October so far, rainfall has ranged from ‘a start’ to very useful across the east coast.  It will be interesting to see if yardings remain low, figure 1 shows that on average, and last year, yardings tend to jump in the third week of October.

The Eastern Young Cattle Indicator (EYCI) continued to rally, but the pace slowed.  The EYCI gained 8¢ this week, to lift it to the levels of five weeks ago, at 541.25¢/kg cwt (Figure 2).

Heavy Steer prices managed to break back through 500¢ in NSW (507) and Victoria (518), but somehow managed to slip below those levels in Queensland (492¢).  Perhaps there are still a few of the record numbers of grainfed cattle coming to the market.

The weakening Australian dollar managed to give beef export prices a small lift.  The 90CL Frozen Cow gained 3¢ to 594¢/kg cwt which just moves our target prices a little higher if the rain continues.

The week ahead

There has been widespread rain over the last 12 days, with parts of Queensland by far outstripping the monthly average.  The forecast says there is more to come for at least half of Queensland (figure 3), and this suggests that there is only one way for cattle prices to go next week, especially young cattle prices.

The Mecardo team have been suggesting a price bounce was imminent for the last few weeks given the rainfall forecast, recovery in export prices and falling supply at the saleyards. But as the old trading adage goes, “even a broken clock gets it right twice a day” so we won’t puff out our chests too much on this one.

Figure 1 shows the rainfall for the week with much of Southern Queensland getting some reasonable action. This, along with the forecast of some further falls expected for NSW into October (according to the most recent BOM outlook), has given a bit of a boost to optimism here for producers and both NSW and Queensland responded this week with significant decreases to yardings.

Queensland cattle yardings were down 50% on the week, while NSW saw a 58% decline in numbers at the saleyard. This reduction in supply helping to push the weekly East coast yarding figure to the lowest it has been all season at just 24,818 head recorded – figure 2. This throughput measure is well below the normal range and sits 53% below the five-year average for this time of the season.

The decreased supply also evident in young cattle numbers with EYCI yardings also registering its lowest average weekly figures since September 2016 at just 9,537 head. Indeed, EYCI cattle throughput has fallen 50% over the last month and the reduced supply has given some support to prices this week. The EYCI recovering 5.4% to close at 533¢/kg cwt. The young cattle price boost was not limited to the East coast alone with the WYCI up a similar magnitude, staging a 5.8% increase to 558¢ – figure 3.

The week ahead

The recovery in the 90CL beef export price over the last few weeks signalled that young cattle prices were getting a bit undervalued; and all it took was a bit of rain and tightening supply to see the market find a base. The 90CL now sits at 589¢/kg CIF and reports out of the US indicate that both domestic and export demand is strong and feeding into higher grinding prices.

The prospect of steady to firmer export prices in the coming weeks and a better weather outlook for much of NSW should see cattle prices continue to be supported locally.

Last week we wrote about how the increasing tariffs on US Beef entering Japan is expected to have a small positive impact on export beef, and cattle prices. Obviously the support hasn’t been strong enough to stop price falling, but is the China import ban causing the fall?

The China import ban is limited to six export beef plants, in Queensland, New South Wales and South Australia. While the reason for the bans seem rather trivial, the impact on individual plant is likely to be relatively severe. The bans were apparently due to mislabelling, with labels inside boxes not matching labels on the outside of the box.

Regardless of the reason for the ban, any limitation of export to a particular market will result in weaker demand for beef, and stronger supply into other markets. Figure 1 shows that China is Australia’s fourth largest market for beef exports. It accounted for 10.8% of our exports for the first half of 2017.

If we take Australian domestic consumption into account, China receives 7.7% of Australian beef. There are currently 46 meatworks which can export beef to China, so there are still 40 works which can still send beef.

In terms of the type of beef, figure 2 shows that in 2016 a vast majority, 70% of Australian beef exported to China, was Frozen Grassfed; while Frozen Grain made up 23%. In terms of cuts, a wide variety is sent to China. According to MLA figures, ‘other’ was the largest category in 2016, accounting for 35% of exports. Brisket was the second largest category, making up 23% of Chinese exports.

As a comparison, in 2016 Australia sent 21,689 tonnes of Brisket to China. Japan took 42,381 tonnes of brisket in 2016, being the second largest cut exported there. Given the Japan tariff hike on US beef is likely to increase demand for Australian frozen briskets, there is likely to be some substitution from Chinese to Japanese markets.

Key points:

• The Chinese ban on six Australian meatworks is yet to be resolved.
• The proportion of Australian beef production impacted by the ban is relatively small.
• Chinese beef imports from Australia are largely made up of grassfed beef, any impact will be felt at this end.

What does this mean?

Given the amount of beef which is likely to impacted by the Chinese ban on six meatworks, the effect on price at saleyard level is unlikely to be noticeable. Figure 3 shows the price of Frozen Briskets exported to Japan, which hit a two and half year high in July. While there are plenty of other factors which come into play with export beef prices, this is the series most likely to show how export issues are impacting the market.

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