JANUARY is always a low-volume month for beef exports due to holiday plant closures and tonnage this year was also affected by reduced numbers of cattle coming forward to slaughter compared to this time last year.
The end result as shown in the latest figures from Department of Agriculture (DA) is 58,304 tonnes for the month.
While this stands in stark contrast to the 112,000t exported in December, it needs to be remembered that in October/November there was a build up of beef in storage in Australia which was not eligible to be shipped to the US for 2015 quota entry.
As soon as shipping commenced in late November/early December for the 2016 quota year, that product was dispatched.
Certainly the January figure is down on the corresponding months of 2015 and 2014 which recorded 67,000 and 69,000t respectively.
But drought-induced herd liquidation was in full swing then as indicated by the elevated slaughter figures of around 610,000 head across the eastern states to the end of January in both of those years.
Christmas rain may have held some cattle back in January but at the heart of the matter is the accumulated run-down of herd numbers which will continue to impact slaughter numbers in the months and years ahead.
MLA projections
LATEST projections from MLA put the national herd at 26.2 million head by 30 June 2016, down from the official peak of 29.3m in 2013.
The expectation is that the herd will continue to decline into 2017 becoming the lowest national herd since 1993 at 25.9m. Not unexpectedly, the flow-on effect will be significant for the processing sector.
MLA predicts a 16pc year-on-year decline in slaughter numbers in 2016 to 7.6m head, one of the largest yearly drops ever recorded.
Looking back through the weekly slaughter figures it is apparent that the turning point was mid way through 2015. Kills had been strong up until June but then began to drift lower despite no appreciable improvement in seasonal conditions and a significant ramping up of prices by processors in response to the falling numbers.
MLA believes that even without widespread drought-breaking rain, the decline that has begun will continue throughout 2016 and into 2017. This means national (eastern states) weekly slaughter will fall to somewhere between 120-140,000 head over the coming two years.
Between 2016 and 2017, MLA predicts there will be a further 8pc year-on-year decline in slaughterings taking the yearly total down to 7m head, the lowest number processed since 1995.
Improvement in US market
IT has been a while coming but the last couple of weeks has seen some improvement in the US imported lean beef market which suggests the price collapse which began in dramatic fashion last October has finally bottomed out.
Two weeks ago US based analyst, Steiner reported a modest rise from US 175-179c/lb (CIF East Coast) to 184-186c/lb for indicator category 90CL blended cow.
Last week, they reported a further 5c/lb rise to 190-191c/lb.
Relatively tight spot market supplies coupled with limited offerings from New Zealand and an expectation of reduced slaughter levels in Australia seem to be the reasons behind the turnaround.
Certainly Australia’s relatively modest January shipments of 16,848t would have helped to contain spot market supply. By comparison, the January volume in 2015 was over 25,000t.
But as well as these positive influences, Steiner has pointed out that cold storage stocks in the US remain large and this could be a moderating factor in upward price momentum in the short term.
Boneless beef inventories as at January 1 were 16.9pc more than a year ago and 19.4pc more than the five year average.
As such, these stocks represent a potential hedge for end users against higher prices in March and April.
USDA’s latest statistical release shows the beef cow inventory as at January 1 is up by 4pc on year ago levels and MLA in its latest projections is inclined toward the view that resultant beef production increases in 2016 will likely reduce the pull for Australian and other imported beef. Steiner however sees it differently.
They believe the high ratio of US cow slaughter to January 1 inventory experienced in the drought years will fall as the culling rate reverts to normal and that could result in total cow slaughter falling a couple of percentage points in 2016.
This would have a negative impact on domestic lean beef production and could therefore be a positive factor in the demand for imported lean beef.
Steiner describes this as an important consideration for those involved in the US grinding beef market.
Slaughterings down but prices remain steady
WITH public holidays and the progressive return to work of plants that took time out over Christmas/New Year, it is usually not until the first week in February that the first real indications of the supply-side dynamics facing the processing sector begin to appear.
Last year, Queensland slaughterings in the first week of February shot up to 83,000 and that remained the tone right through until supply started to falter in September/October.
This year, last week’s Queensland slaughter amounted to 67,722 and one major processor contacted early in the week believes this week’s kill will be down on last week.
Meanwhile, prices haven’t really changed from opening rates at the beginning of the year with four tooth ox quoted this week at 510c/kg and heavy cow at 465.