New year opens to lower prices

Four tooth ox which closed at 545c in December are now quoted at 505c and heavy cows have dropped from 500-505c to 460-465c.

Unfortunately the brightened seasonal outlook brought on by the Christmas monsoonal rain and the extra bit of zing this has put in the store cattle market does not have a similar parallel in global beef markets.

One major processor I spoke to early in the week said that trading meat internationally was very hard going at the moment.

Of our three largest markets, Korea is perhaps the best of it as reflected in the good growth it showed last year particularly in the closing months. But near neighbour Japan is another matter.

With the front-end loading of tariff reduction under the Japan Australia Economic Partnership Agreement (JAEPA) that came into play in the early part of 2015, there was real expectation that this would provide the stimulus needed to restore growth.

Unfortunately, the momentum that began in 2014 could not be sustained in 2015 despite a 7pc tariff advantage to Australia on chilled beef and a 10pc advantage on frozen.

Each month from May to December, tonnage was lower in 2015 than the preceding year. The end result was a total export tonnage of 285,000, a 12 year low.

The US is the remaining market in this trio and much has already been said about the difficulties that have prevailed since the initial price collapse in October last year. In short, the price of imported lean beef is still falling with US-based analyst Steiner quoting the market last week at US 175-179c/lb (CIF East Coast).

This means the market has suffered a correction of almost 30pc, a massive adjustment.

January will see a very modest export tonnage to the US with only 7500t shipped as of the 14th.

This is a vast reduction on December’s 40,000t figure and should go some way toward helping to clean up supply in the spot market. 

According to Steiner, some market participants remain quite wary about booking meat out front.

From a global perspective there is concern about another financial crisis in Asia which could negatively impact demand for beef as well as added uncertainty from the recent sharp corrections to crude oil prices and what may follow.

All up, Australian exporters are still in the dark hours of the 2016 trading-year dawn and waiting for the sun to pop up on the horizon.

LAST week the generally accepted Australian cattle market barometer, the Eastern Young Cattle Indicator, rose to new heights to break the 600c/kg dressed-weight barrier but strangely the reality in the slaughter market that very week was a substantial reduction across the board in the value of cattle.

The EYCI announcement brought out all the usual comments in the electronic media about the price of meat in butcher shops and so on.

Certainly some sort of message was getting through to the man-in-the-street as I had someone excitedly tell me in the supermarket how wonderful it was that cattle are now averaging 600c/kg in the saleyards.

The fact that EYCI has little or no relationship to the price of slaughter cattle is obvious when the indicator and actual slaughter-cattle prices can be observed moving in opposite directions and exhibit massive difference in terms of absolute value.

For example, mainstream two and four tooth ox last week were quoted at 510 and 505c/kg while best cow rate was 460c/kg dressed weight.

On this occasion ox and cow rates are well behind the EYCI but the reverse can just as easily happen.

In the second week of October 2014, the EYCI rose to its highest level in two years when it reached 366.25c/kg. That same week saw ox at 400c/kg and cows at 370c.

There is no hidden agenda in the fact that older, slaughter-type cattle are not represented in the EYCI. It was always thus from the outset. EYCI is a rolling average price derived from saleyard data in Queensland, New South Wales and Victoria for vealers, yearlings, steers and heifers weighing more than 200kg, fat score 2 and 3 and a C muscle profile. Accordingly, the vast majority of export slaughter types which are mostly reported in the grown steer and heifer, cow and bull categories are excluded from the calculation.

Proponents of EYCI at the time it was developed argued that young cattle were chosen because when producers sold older slaughter cattle and replaced them with young cattle, the profit from the sale influenced the price they were willing to pay for the replacement young cattle.

EYCI was also intended to be the basis of the MLA/SFE Cattle Futures contract which was listed in August 2002 on the then Sydney Futures Exchange (now ASX). However, it never really got off the ground and the contract was delisted in 2009.

Whatever the history, the fact remains that EYCI is calculated from saleyard transactions that are overwhelmingly of a store-cattle nature. Look at any Roma, Dalby, Dubbo or major southern-market saleyard report and it is apparent that feeders and restockers account for the vast majority of EYCI-eligible transactions. It is therefore a valid indicator of the store cattle market.

But why pretend it has anything to do with the slaughter market by reporting the indicator price in c/kg dressed weight?

Call it what it is; the Eastern Store Cattle Indicator (ESCI) and report it in commonly understood liveweight price.