According to last week’s report from analyst Steiner Consulting, that figure is now US$0.93c/lb which represents a whopping 45pc drop.
The latest report from United States Department of Agriculture shows the fed-cattle price (as at September) dropping 21pc since the beginning of this year alone. In more normal circumstances, that sort of adjustment in a market which is pivotal to Australia’s huge export orientation would be felt here fairly quickly.
That was the case in September/October last year when the US market took a 17pc hit in just two weeks. The southern-Queensland four-tooth ox price had reached 565c/kg dw immediately before the US crash but quickly fell to 520.
It continued its downward trajectory in the early part of 2016 to below 500c but when rain arrived in May and started the pattern for a wet winter, the resultant tightening in an already restricted supply environment hiked prices back into the low 500s and on to the 580 mark still prevailing as of last week.
While those with cattle to sell might be taking a certain amount of comfort from official projections that the market will remain in critical undersupply well into 2017, the same can’t be said for the processing side.
Until a sniff of a sustainable increase in supply comes along it is hard to see how processors can get any relief from the sort of rates that competition for a scarce resource is forcing upon them.
But the message from across the Pacific would seem clear. The factors that led to the 2014 price phenomenon have changed and brought about a massive adjustment.
Australia’s own changes in market dynamics lie ahead and it would seem wise to anticipate an adjustment of similar direction if not necessarily of the same magnitude.
Increased supply leads price drop
THE principal reason US cattle prices are descending the reverse side of the 2014 graph is the rebuilding of the national herd and greater supplies of slaughter cattle coming to hand.
Steiner reported last week that the prior week’s kill for fed cattle was the largest so far this year and more than 10pc higher than year ago level. Non-fed cattle slaughter is also up despite the continuing nature of herd rebuilding at this time.
Last week’s kill of cows and bulls was expected to be over 8pc higher than year ago levels with all of the increase due to beef rather than dairy cows.
The increase in fed-cattle slaughter has a spin-off effect with greater quantities of rounds and chucks destined for the grinder as well as bigger quantities of fat trim in the domestic market and all of this at a time when both foodservice and retail operators have plenty of other protein options.
To make matters worse, reports of weak sales in the foodservice sector appear well founded which ties in with the weak pricing for grinding meat.
Consumers it seems are voting with their feet in consequence of higher prices with the foodservice Foot Traffic Index revealing extremely weak counts for most of this year.
Latest price for imported 90CL blended cow is US186c/lb (CIF East Coast) which is where it was in February this year when southern Queensland processors were paying around 460c/kg for good cows with the advantage of a weaker AU$.
With more cull cows expected to come to market in the US in the months ahead, the additional pressure on domestic lean beef price may see the low point of US175-177c/lb for imported 90CL repeated or even exceeded which would make last week’s price of 530c/kg for heavy cows in southern Queensland even more untenable than it already is.
US more competitive in global markets
As well as the direct supply/demand interactions in Australia’s beef trade with the US, there is also the competitive consequence of cheaper US beef in global markets that are important to Australia.
Latest data (August) compiled by the US Meat Exporter Federation (USMEF) shows a year-to-date 16pc increase in beef exports to Japan and a 28pc increase to Korea over 2015 levels.
Also, expanded access has created new opportunities for the US with our near neighbour Indonesia and a fourfold increase in beef sales has already occurred albeit off a low base.
USMEF president and CEO Philip Seng described the US at present as being very competitive in comparison to key competitors Australia and the European Union. Converting the price US producers are currently receiving for fed cattle into Australian dollars brings that competitiveness into perspective.
The US$93 per hundredweight live figure quoted by Steiner converts to AU269c/kg live or around 490c/kg dw on current exchange rates. Add to this the significantly lower processing costs in the US and it is obvious that they have a big edge over Australia at present.
NO sooner had the ink dried after penning the above comments than the latest figures came through from MLA on last week’s eastern states kill. Having predicted in last week’s column that the downward trend in slaughterings might be about to turn, out came the news of an 18pc jump in slaughter numbers to 119,549. Whether this can be maintained remains to be seen but processors seem confident in the immediate term at least that they can fill the modified shift arrangements that are presently in place. As a consequence, prices in southern Queensland have already come off by 20c bringing four tooth ox to 560c and heavy cow to 505.