Tag: Cattle

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.

Isn’t it great to see rain falling to parts of NSW and Queensland that have been missing out for some time? Certainly, cattle markets have responded kindly, but we really need to see more rainfall to get the confidence of restockers to re-engage with the market in a meaningful way.

Figure 1 shows the distribution of rain over the last week across the country with falls up to 100 mm noted for parts of western NSW. East coast cattle markets are benefiting from the wet, with younger store cattle and breeding stock posting price gains.

Meat and Livestock Australia are reporting weekly price lifts for east coast feeder steers, up 2% to 296¢ and east coast yearling steers gaining 1.5% to finish at 283¢. Stronger price movements were noted for east coast medium cow with a 3% increase to 242¢/kg cwt.

The benchmark Eastern Young Cattle Indicator (EYCI) mirrored the positive tone with a 2% rally on the week to close at 521.75¢/kg cwt. The EYCI has been climbing steadily, having risen over 11% since late September. The last three seasons we have seen the EYCI climb through spring, so it is not an uncommon scenario, but the recent rain is helping to underpin young cattle prices – Figure 2. The EYCI is currently sitting just 3¢ above where it was this time last season.

An additional factor underpinning cattle prices more broadly across Australia has been the ongoing surge in demand for beef coming out of China. The October release of trade data from the Department of Agriculture shows average monthly beef flows from Australia to China are running 122% above the five-year average trend. This is due to Chinese consumers needing to attempt to fill some of the void created by the crisis impacting their pork sector presently.

Indeed, China is closing in on Japan as Australia’s top beef export destination with current market share proportions showing China at 22.9% compared to Japan’s 24% – Figure 3. Remarkable, considering China finished the 2018 season at 14.5% of the market share of Australian beef exports and was sitting at just 10.8% in 2017.

Next week

Unfortunately, the forecast for next week shows the rain absent from much of mainland Australia, with falls between 25-50mm limited to eastern Victoria and coastal sections of western Victoria.

Several more weeks of rain like what we have experienced this week is required in NSW and Queensland before we can confidently expect restockers to get active. However, the Bureau of Meteorology three-month outlook released yesterday signals a low chance of any significant follow up rain during November for NSW and Queensland.

This lack of follow up rain is sending me “around the Twist” and suggests further cattle price gains will be limited for young cattle, but offshore demand should keep finished cattle prices buoyed.

This time last week we were bemoaning the lack of rainfall on the forecast, and predicted more sideways action in markets. They say a week is a long time in football, well it seems to take forever when rain comes on the forecast and we wait for it to fall.

The rain that has fallen in Western Queensland, and is forecast to fall over the weekend (Figure 1) in New South Wales and Victoria hasn’t yet had much of an impact on markets. The Eastern Young Cattle Indicator (EYCI), the price most likely to get a boost from rain, did rally 10¢ this week though.  Yardings were up by over 5%, so perhaps demand did improve a little, to push the price to a six week high.

In Victoria, it seemed the flow of grassfed cattle to yards overwhelmed demand to an extent.  Domestic feeder steers held their ground, but heavy steers were 12¢ lower at 566¢/kg cwt.

There was a lot of action in over the hooks markets in Queensland last week. Trade and heavy steers lifted 20¢ to 580 and 590¢/kg cwt respectively. Finished cattle supply in the north must be waning, with Queensland now at a premium to WA.

Cows in Queensland were very strong this week. A 16¢ rally took Queensland cows to 483¢/kg cwt, a 12 month high. Figure 3 shows cows have gotten expensive all across the east coast, with export prices driving competition.

Next week:

What happens next week really depends on how much of the forecast rain actually falls. Some key cattle areas are going to miss out, but those which have had a good year to date will have spring extended.

Prices aren’t likely to go down in the current environment, but the upside is also limited until there is some follow-up rain.

We can’t keep slaughtering female cattle at such a rapid rate without having an impact on the future herd and cattle supply. Meat & Livestock Australia’s (MLA) October update to its Cattle Industry Projections has taken recent slaughter into account and forecast the lowest slaughter in thirty years, for two years in a row.

Continued strong cattle slaughter in general, and female slaughter in particular, has seen MLA revise 2019 total slaughter higher again. This time MLA have lifted 2019 cattle slaughter to 8.1 million head, 3.7% higher than the August estimate (figure 1). Since the first projections of the year, MLA has added 800,000 head, or 10.5% to 2019 slaughter.

The dry weather and continued herd liquidation have driven the rise in this year’s slaughter and taken cattle away from the future. MLA made minor changes to herd estimates. Figure 2 shows the herd is expected to decline by 2 million head when we see the June 30, 2019 herd figures. Continued strong slaughter in the second half of 2019 will see a new low, but only a slightly lower herd in June 2020.

With most of the herd decline expected to be behind us, plenty of cattle needed to be stripped from future slaughter to see herd growth. Figure 1 shows that MLA has kept the slaughter forecast for 2020 at 6.9 million head, but decreased the 2021 slaughter forecast to a new 30 year low of 6.8 million head.

The 2021 slaughter forecast is to be 5% lower than the previous forecast and a massive 19% decline in 2019. The last time slaughter was below 6.85 million head was in 1989, thirty years ago. The increase in 2019 slaughter has effectively been taken off 2021. In 2022, cattle slaughter is expected to get back to 7.5 million head, which could be a struggle with the herd still growing.

Live exports are also expected to decline in the coming years. Figure 3 shows that after an 8% rise in 2019, MLA expects a 23% fall in 2020. Strong live export demand is expected to keep numbers at levels well above historical lows, despite what is expected to be very strong slaughter pricing.

What does it mean?

We have been talking for some time about strengthening export beef demand and if we get something near a normal season, we are going to see a collision on tight supply and strong demand.  We saw something similar back in 2016 and 2017, but this time supply will be tighter, and demand is currently stronger.

It is safe to expect strong rises and record prices for all cattle categories, but store cattle are going to see the largest upside.

The Aussie dollar was higher thanks to improving prospects for China/US trade, and declining chances of an interest rate cut next week. This had little impact on export prices however, with higher US value-driving export prices higher.

The story is the same, Chinese demand is diverting product away from the US and importers are scrambling for available lean manufacturing beef. Our slaughter rates remain relatively high, but the Chinese seemingly have more money than the US at the moment.

Figure 1 shows that the 90CL Frozen Cow indicator has rallied with only a couple of hiccups for the last 11 months. Needless to say, current prices are at record levels. Figure 1 also shows how far behind the Eastern and Western Young Cattle Indicators are.

This time last year local young cattle prices were at a small discount to the 90CL, now export prices are the only thing holding young cattle prices at reasonable levels.

Cattle price moves were rather benign this week. Slaughter cattle remain very well priced. The most expensive indicators in the country were the Queensland and Victorian Heavy Steer, at 568¢/kg cwt.

The Queensland Heavy Steer premium to the EYCI has fallen from 20% to 15% (Figure 2), and it’s well above the same time last year. With export beef in demand and young cattle not so much, this isn’t a surprise.

Next week

With no real rainfall on the forecast, we can expect more of the same for the coming week. For markets to go lower, either export markets need to fall, or cattle supply increase. At this stage it’s hard to see either of these things happening, so we continue to wait for rain for the upside.

Measures of cattle supply across the east coast probe lows not seen in many months and prices across categories are mixed on the week. The reduced supply points to a chance for a rally but the lack of rain is hampering the bounce, despite solid offshore demand and strong export prices.

East coast cattle slaughter levels dipped in recent weeks to record the lowest weekly figure recorded since the Easter hiatus this season. Weekly slaughter levels dipped below the 2018 trend for the first time since early August and are running 11% softer than where it was a month ago (Figure 1).

East coast yardings are displaying a softer trend too, with the lowest weekly figure recorded since mid-June. Since the end of September, average weekly east coast cattle yarding levels have been running 7% below the five-year seasonal pattern, further reflecting the tight supply (Figure 2).

Young cattle prices on the east coast have responded kindly to the tighter scenario with the Eastern Young Cattle Indicator (EYCI) lifting 3.5% to close at 503.25¢/kg cwt.  East coast feeder steers also managed a slight gain, up 2.25¢ to 286.5¢/kg lwt.

East coast heavy steers were less reactive, with a 3.5¢ drop to close the week at 309¢/kg lwt. Despite the weekly easing, east coast heavy steers remain at a premium to the EYCI as tight supply of quality finished cattle and a lack of rain continues to favour the heavier stock.

Next week

The BOM issued rainfall forecast for the next fortnight signals limited to no falls in all regions but the western half of Tasmania (Figure 3). Young cattle prices will continue to face headwinds while the rain outlook remains pessimistic.

There remains some good upside potential for prices should the climate start to comply.  The 90CL beef export indicator lifted again to 755¢/kg CIF and the Mecardo analysis published yesterday on the 90CL indicates that the EYCI could go to a 50¢ premium to the 90CL if we get a decent enough break in 2020.

Cattle markets continued to track sideways this week, with very little in the way of major movements in most indicators.  We did see the Bureau of Meteorology (BOM) update their three month outlook yesterday, which is a little more promising, but not much, while the record for 90CL to the US was finally broken.

The 90CL indicator has been creeping towards a new record high over recent months, and it finally broke through last week.  In Aussie dollar terms the 90CL hit 750¢/kg swt, moving higher than the September 2015 high (figure 1).

The driver was values in US terms, with US buyers apparently unable to get product from New Zealand.  This put Australian processors in the driving seat, and able to negotiate values higher.

East Coast cattle slaughter didn’t seem to take a breather for either the AFL or NRL public holidays.  Cattle slaughter did fall slightly from the second last week in September, but it remains above most weeks since mid-June.  Cattle slaughter is well above this time last year, and looks like it will remain there.

Heavy slaughter continues to be counterbalanced by strong export demand.  Figure 2 shows the Eastern Young Cattle Indicator (EYCI) continues to move sideways, defying dry weather and plenty of cattle on the market.

It was this week last year the EYCI took off with some rainfall improving conditions.  It is hard to see a similar rally at this stage, with little rainfall on the short term forecast.

Next Week.

Record export beef prices are no doubt supportive of cattle prices, but it will take rain to see a significant rally.  Figure 3 shows the BOM 3 month outlook released yesterday.  There is a lot less brown than the last forecast, but key cattle areas are forecast to remain drier than normal.  But on the positive side, a 30% chance of above median rainfall means there is a 30% chance of a solid price rise in the next 3 months.