WHEN the US June fed-cattle futures contract jumped 18pc in the space of one month it is a reasonable indication that there is a bit of heat in the market there at present but how long it might burn for is a question attracting a lot of debate in that country.
Obviously because of the size of the trading relationship in beef between Australia and the US it is equally a question of significant importance for the Australian industry to ponder.
To try to predict just when this present rally might end it may be useful to look at the factors that caused it and in that regard the latest offering from Steiner Consulting provides some interesting insight.
Essentially the point Steiner makes is that retail and foodservice in the US were encouraged by low prices in late 2016 and early this year to feature beef items aggressively in the spring ‘grilling’ season.
This created a price-led demand shift at consumer level which placed pressure on packers to supply the meat needed and forced them to bid up the price of cattle in order to secure that supply. That strength in the domestic market is in turn keeping upward pressure on the import market and maintaining very firm prices for mainstream lean-beef product.
As well, cold-storage stock of certain product especially fat beef trim is at a critically low level and this has caused US market importers of fat beef trim to easily outbid other global players.
The movement in price for this product tells the story of just how hot this particular segment of the market has become.
Indicator 50CL fat trim reached almost US190c/lb last week, 44.5c higher than a week ago and 134.6c higher than last year.
In comparison, 85CL and 90CL beef trim were described as trading firm at around 196c and 225c respectively which varied only by 2-4c on last year.
The fact that 50CL fat trim is trading at just a few cents short of the price of 85CL beef trim is quite extraordinary.
As Steiner points out, this is an indication of the lengths end users are prepared to go to in order not to compromise their pre-ordained marketing strategies and thus their customers.
Adding to the complexity of the situation is the fact that this year the featuring of beef items at retail is at an all-time record high, up 18pc on last year. It is interesting in itself that USDA actually has a retail beef activity index to measure this.
Favourable consumer response to the low prices of the featured beef when the strategy first commenced in March is offered as the likely reason retailers have committed to carrying through to Memorial Day (last Monday in May) as this is the biggest beef consumption weekend in the US.
But there is some concern in the US over the extent to which domestic cattle and meat prices have increased over the last few weeks and some believe there is potential for a sharp decline once Memorial Day needs are filled.
Others however are inclined to think the current bull run has a little more time to play out.
The increased packer demand for cattle has resulted in feedlot inventories being very current. Add in the effect of adverse weather events and the result is a sharp decline in US fed cattle weights which have reduced the amount of fat beef trim available.
Also, the jump in beef exports to Japan, a market which takes significant quantities fatty US beef cuts has further reduced the amount of available fat trim.
These domestic supply factors tend to discount any notion that supply alone might initiate a drop in price.
Reduced consumer demand would arguably have to come into the mix for an oversupply scenario to emerge in the short term and that would seem unlikely.
As Steiner points out lower consumption in the past was not because people no longer wanted to eat beef, it was just that it got too expensive.
On that rationale, consumers who have only just re-engaged in their desire to eat beef will continue to buy until they are once again faced with higher prices.
Reports published by USDA for the week ended May 5 put the retail price for 80-89pc ground beef blend (the most common) at US$2.90/lb so on that score it would seem there is some scope for retail prices to increase before consumers disengage once again.
That might mean the US market can maintain its momentum well beyond Memorial Day and hopefully onward throughout the remainder of 2017.
Rain could steady flow of cattle
ADVICE from one major processor contacted earlier this week is that the good flow of cattle experienced so far this month is starting to go a bit quiet.
For the moment in southern Queensland at least the next couple of weeks seem to be covered but June is looking a lot less certain.
Seems everyone is watching the weather pretty closely as predicted falls of 100-200mm for the Central Highlands and adjacent areas to the north and west draws nearer.
A trough system is also expected to work through from the far south-west this week with scattered storms expected to deliver falls generally in the range of 25-35mm and possibly as much as 100mm in places.
Rates in Southern Queensland have remained stable for the last couple of weeks which might indicate that prices have reached the low point of the adjustment cycle that usually accompanies the autumn surge in slaughter numbers. Current indicator four-tooth ox price is 510c/kg and heavy cow is 455.
Slaughterings across the eastern states last week reached a high point for the year at 133,316 head according to MLA’s Market Reporting Service.
Queensland was the main driver with numbers up 10pc at 69,304, the highest weekly kill so far this year.
