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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Some big moves again in East coast lamb and sheep yardings this week, heavily influenced by NSW flows, but for the most part prices around the country finished firmer. The headline, Eastern States Trade Lamb Indicator rising 1.3% to break back above 600¢ – although stronger gains were noted across other categories of lamb across the country. 
The slide in cattle prices continued this week, with more help from lower export prices, pushing the EYCI back to two year lows for this time of year. Rainfall across NSW and Victoria doesn’t seem to have helped the cause yet, as supply continues to outweigh demand.
The three-week recess seemed to create pent up demand from the processors, with the larger offering and stronger A$ unable to dampen competition – the wool market had a good week. AWEX reported that buyers were bidding strongly from the outset to fill orders secured over the break.
The first week in August. This month is one of the most important in the cropping year, as we will have increased certainty on the rest of the world’s crop, and start to gain greater clarity on how good (or bad) Australia is going to be come December. It is the knife edge time of year.
At a local level flat price around the country have fallen since a peak on the 11th of July (figure 3). During the first week of July all port zones were able to achieve historically competitive prices, however few growers have taken advantage of the prices available. Since the 11th, across all ports in figure 3, the price has dropped by $32 per mt.
Figure 1 highlights the chance of rainfall exceeding the median levels for this time of year, and it looks particularly unfriendly to southern NSW. Despite much of Queensland enjoying a rosier picture, cattle prices here were among the softest this week with QLD Heavy and Feeder steers bearing the brunt of the negative sentiment – off 6.6% (260¢/kg lwt) and 6.2% (308¢/kg lwt) respectively. Meanwhile, Victorian saleyards registered Feeder steers and Trade steers as their weakest two categories, down 6.2% (301¢/kg lwt) and 4.2% (302¢/kg lwt) between them. In defiance of the BOM outlook the NSW markets were reasonably flat on the week, apart from Medium Cows, marked down 4.3% to 208¢/kg lwt.
Some reasonable rainfall is noted for much of WA and Victoria next week, but much of the rest of the country is expected to miss out again. A key factor for the EYCI to find a bit of a base in the next few weeks will be the movement in the 90CL and the A$.
According to the US Meat Export Federation (USMEF), who have produced an excellent fact sheet, a vast majority of US frozen beef exports to Japan are grainfed brisket and short plate cuts. These cuts are used in gyudon beef bowl chain restaurants.
While mutton markets have participated in the decline in ovine markets since mid-June, unlike lamb markets, mutton values have managed to remain strong relative to last year’s levels. Figure 1 shows the National Mutton Indicator (NMI), which last week fell to a six month low of 395¢/kg cwt.
In 2016 the mutton market eased a little, but found solid support at 350¢ as the good season and flock rebuild supported prices. From 2012-2015 the NMI averaged 230¢/kg cwt in October, so it’s the exception for mutton to be valued at better than 300¢ in the spring.
Obviously there is no guarantee that Australian sheep areas will have a dry spring. The BOM have been in pretty good form this year, and their latest forecast doesn’t paint a rosy picture (figure 3). Simply based on historical mutton prices during strong supply, we would put the NMI in the 200-250¢/kg cwt range.
Figure 1 shows the rapid increase in sheep slaughter over the past month. This is a sure sign of moisture stress for sheep growers. Lambs can’t be offloaded as they are not ready, so it is sheep which are hitting the market, most likely wethers. Sheep slaughter for the week ending the 28th July was the more than double the same week in 2016, and the highest level since 2013, but only marginally beating 2014.
At global level, we have seen further deterioration of Chicago wheat futures, with the spot market falling to as low as 474¢/bu, from a high at the end of June of 539¢/bu (figure 1). The market has lost 3/4 of its gains in ¢/bu since the rally in the end of June. The fall in SRW wheat is not unexpected as weather issues around the world are more a quality than quantity issue at present, and with beneficial rains being received throughout the US, risk to this crop has reduced and priced into the market.
