Month: May 2018

With the Beef Australia conference on in Rockhampton it looks like buyers pulled up stumps for the week and went north. This was evidenced by further declines across most cattle categories, despite some support coming from export markets.

The Eastern Young Cattle Indicator (EYCI) continued its downward trajectory, posting a 13.5¢ or 2% fall to plumb new three year lows of 484.75¢/kg cwt. Our resident technical charting expert is networking in Rocky, no doubt enjoying the weather while the base in Ballarat freezes, but even to this untrained eye there are some interesting trends.

Figure 1 shows the EYCI approaching its five year average, currently sitting at a 23¢ premium. We would think the five year average should offer somewhat of a support level. Figure 2 shows the classic ‘head and shoulders’ charting pattern. We’ve just broken thorough the right shoulder, and look to be headed down the arm.

The five year average is about the elbow, let’s hope it stops there and doesn’t head down to the knees where we were back in 2014.

There was some positive news about. Figure 3 shows the 90CL export price chart we published earlier in the week, with a solid tick upwards in US prices, and the AUD falling below 75US¢, pushing our price back to 590¢/kg swt.

Additionally, most of Victoria, and South East South Australia got some good rain over the last few days. It will be particularly important for parched parts of Gippsland. These areas only account for 4 million head, or 16% of the national herd, so it’s unlikely to move the market too far.

The week ahead

There is still no rain forecast for NSW, so it’s hard to see cattle markets heading higher in a hurry until there is some relief. Grain prices also continue to charge higher, with feed grains heading towards $280-300/t and this will obviously dampen demand from lotfeeders. A real rally in cattle markets is going to require rain, and there is probably still scope for it to head lower if it remains dry.

We’ve been banging on about stronger cattle slaughter in response to dry weather for a while now.  The stronger slaughter has now translated into stronger exports, with April defying the usual trend and putting up some big numbers.

It should be somewhat comforting to cattle producers that the strong supply seems to be finding homes in export markets. Demand for Australian beef remains relatively robust. Figure 1 shows April beef exports were down a marginal 3% on March thanks to public holidays. Exports were however, 32% higher than April last year, and at a four year high for the month.

Japan was again the major market for our beef. Despite the slight month on month fall, exports to Japan were up 3% to their highest level since August last year, taking 31% of our beef.  Korean exports were down 11% on last month, so it would seem Japan are absorbing more high quality beef.

Chinese exports were up 10.5% on March, and a very strong 54% on April last year, hitting their highest level since November 2015 (figure 2). Chinese beef demand continues to grow, and it is slowly heading back towards the boom times of 2013 and 2015. China again went past Korea to become our third largest market, at least for April.

Exports to the US market were down 2.5% on March, but up 33% on April last year (figure 3). Stronger slaughter, and especially female slaughter, this year has increased the supply of manufacturing beef, our main export to the US. The stronger supply of beef, along with increased US slaughter, has seen the 90CL fall 7% in US terms, and 10% in AUD terms.

What does it mean/next week?:

It will be interesting to see if beef exports show the usual bounce in May, which would see them rise around 16%. The way the season and slaughter is tracking it wouldn’t surprise to see a solid increase in beef exports.

With beef still seemingly being sold into export markets at reasonable prices, there is hope that if the dry continues, the subsequent stronger supply might be soaked up at around current prices.  Obviously, if it rains tighter cattle supply will see competition for beef, and improved prices.

Key Points

• Beef exports were down slightly on last month, but much stronger than April 2017.
• Exports defied the usual downward trend in April thanks to stronger slaughter.
• Exports to China hit a 3 year high as the upward demand trend continues.

Perhaps producers are responding to the rainfall scheduled for the coming week a little early, but the decline in cattle throughput at the sale yard over the last seven days have seen national cattle prices stabilize. The story is mixed across the states, though broadly speaking the market looks to have found a bit of a base.

Table 1 highlights the weekly price action for a selection of cattle categories across the Eastern seaboard with all but Medium Cow postinggains. The Eastern Young Cattle Indicator (EYCI), Trade and Feeder Steers are barely unchanged. Medium Steers the best performer, up 6.5% to 264.6¢/kg lwt.

In Queensland, sale yard prices were a little softer across the board with most types off 1-3%. Medium Steers were the laggard in the north, down 5% on the week to 246¢/kg lwt. NSW saw mixed action for its cattle categories, ranging from 5% gains to 5% losses. NSW Restocker Steers proved the best performer, with a 4.5% lift to 268¢/kg lwt and Trade Steers are dragging their feet a bit posting a 4.8% drop to 273¢/kg lwt. In Victoria, all categories bar Feeder Steers saw price rises between 1-8%. Victorian Feeder Steers had a 2% decline to close at 266¢/kg cwt and Heavy Steers put in a stellar effort to finish the week up 7.8% to 279¢/kg lwt.

East coast throughput figures provide a clue to the halt in price declines, with cattle yardings off 43% on the week to see throughput levels test below the normal range for this time in the year – Figure 2. Cattle yardings were just shy of 43,000 head and are now sitting 30% under the average seasonal level based off the last five years of data.

In the West, cattle yardings were also softer, with prices stabilizing to close at 560¢/kg cwt. Western young cattle prices are still enjoying a 13% premium to the EYCI, which finished the week at 496¢.  In offshore markets the 90CL frozen cow indicator trekked sideways to close at 573¢/kg CIF – Figure 3.

What does it mean/next week?’

For the first time in a good while there is 10-25mm of rainfall forecast for a swathe of the Eastern states. This is likely to see a lift in spirits and may also revive the interest of some Southern restockers if it looks to be the signal for the beginning of the Autumn break. Cattle prices should continue to consolidate in the coming week with a slight upward bias if the rains come as hoped.

Meat and Livestock Australia (MLA) released their quarterly projections this week, and while there were some revisions to this year’s projections, the next three years are expected to be largely the same as was projected in January. The herd growth is expected to be a little weaker, but it’s not really showing up in slower herd growth based on the MLA figures.

Figure 1 shows the only real major change in MLA’s projections since January, being the increase in slaughter for this year. The strongcattle slaughter to date has seen MLA lift 2018 slaughter by 1% to 7.475 million head. The lift in the slaughter projection doesn’t account for all the extra cattle slaughtered so far, and we think the annual number might be a bit higher than this projection.

While slaughter forecasts are still well below the bumper numbers of 2013-15, it is still the fifth highest of the last 10 years. The higher slaughter this year isn’t expected to result in fewer cattle coming to market over the coming four years. MLA have left forecasts for 2019-2022 unchanged, with the gradual increase in response to an increasing herd.

Similar to slaughter, MLA have left their projections for the size of the herd unchanged.  Figure 2 shows minimal change in the forecast growth in the herd. The Australian cattle herd is expected to grow by around 1-2% per year until it reaches a 45 year high in 2022.

It’s highly unlikely that the herd will grow in such a uniform manner, as seasonal conditions often throw projections out the window. The current dry spell is likely to see higher slaughter in the short term, slowing of the herd rebuild, and weaker slaughter in the medium term.

Carcase weights are also expected to grow after having a setback this year. Dry weather and lower numbers of cattle on feed should see average slaughter weights fall this year. MLA are expecting carcase weights to grow to a record high in 2022.

What does it mean/next week?:

As long as cattle remain relatively strong, the herd should continue to grow. The current very strong slaughter is still seeing cattle prices above the pre-2015 records, so we can say that cattle prices are still strong.

MLA obviously expect cattle prices to remain strong, as the herd and carcase weights wouldn’t grow unless there was an incentive to produce more beef. The slaughter projection for this year might be a bit low, and if we end up with higher levels, it should see lower slaughter next year.

Key Points

• MLA’s quarterly projections show a small increase in 2018 slaughter, but no change in later years.
• The herd and carcase weights are expected to grow to at least 40 year highs by 2022.
• The stronger slaughter now might see annual rates surpass projections, taking cattle from the 2019 season.