In August, Australian cattle prices became some of the most expensive in the world. While many of us may be questioning how many Olympic medals Australia brought home, if cattle were an Olympic sport we would be standing on the top of the podium having just pipped the US for the gold medal.
Australian cattle prices, for the large part of recent history, have generally tracked at similar levels to other major beef producing countries (Brazil, New Zealand, Argentina and Uruguay). The US and Canada (driven primarily by the US market) have been the standout performers for the last five years. In 2014 after their drought, US cattle prices exceeded USD 3.50/kg lwt while most other countries were tracking around USD 2.00/kg lwt. However since 2015, US prices have fallen and are now back down to levels last seen in 2011 and 2012 at around USD 2.50/kg lwt.
In the meantime, Australian cattle prices have lifted. Driven firstly by US prices and now a shortage in supply, they are tracking at over USD 2.50/kg lwt. This is the first time in the 12 years that Rabobank has been tracking these prices that Australian cattle prices have been the most expensive.
High cattle prices are great if you have cattle to sell. However, if you are buying cattle and selling beef – and therefore not able to realise the higher cattle prices – it is not so great.
In the US, increased beef production and strong competition from competing proteins have brought beef and subsequently cattle prices back down from their lofty heights. The Western Kansas (fed) steer price has dropped 30 per cent since the peak in 2014. Similarly, and importantly for the Australian beef industry, the US imported 90cl cow (manufacturing) beef price has also dropped 30 per cent from its highs in 2014 to USD 4.36/kg lwt (AUD 5.74/kg).
The lower global beef price together with the general reluctance to push domestic retail beef prices higher (Australian retail beef prices have increased 26 per cent since late 2013) will affect the buying decisions of processors and exporters. This is seen in the composition of the buyers in the Eastern Young Cattle Indicator (EYCI) market. Normally processors, feedlots and producers hold an equal share in the EYCI market. However, since export prices have declined and domestic cattle prices have increased, the presence of processors buying in this market has dropped to below 20 per cent. A similar story can be expected to play out in the finished cattle market, where lower beef prices limit the ability for buyers of these cattle to pass on higher cattle prices.
So while Australia is experiencing an outstanding run of cattle prices – and claimed gold at the 2016 cattle Olympics – cattle prices will have to moderate to rebalance the industry – and allow for the performance to be repeated in four years’ time.
