PROCESSOR expectations of good early supply of cattle in the opening months of 2018 seem well founded at this early stage with MLA’s national slaughter report showing 40,000 more cattle killed across the eastern states in the first five weeks of 2018 compared to same period last year.
This translates into the best export tonnage since 2015 for the month of January.
According to Department of Agriculture and Water Resources (DAWR) 60,864 tonnes were shipped compared to 50,800t in January 2017.
No doubt the good rains recorded in October played their part in priming the supply lines for the early part of this year and the fact that there has been no general break in season since would have precipitated some early lightening off.
Until last week this trend looked set to continue but then came the rain.
Falls of 50-150mm were reported in a wide band from the Southern Border regions right up through the Downs, Maranoa, Taroom, Central Highlands, Charters Towers, Hughenden and Peninsular but patchy and progressively lighter in central and western areas to the point that the Far West and Corner Country missed out.
Apart from the immediate effect on saleyard and meatworks bookings, the rain should steady the flow of heavy feeder types into feedlots and thus set up to some extent a pipeline of grassfed ox for later in the year.
Heavy feeders were coming under considerable price pressure before the rain with rates falling to around 290c/kg for milk-tooth blacks and considerably less for Brahman types and steers with permanent teeth.
Also, the change may now encourage joining of additional females.
Heifers retained on the back of the October rain might now go to the bull unlike the situation in early 2017 when there really wasn’t sufficient seasonal encouragement to join those heifers retained on the back of the 2016 wet winter.
Similarly cows that were starting to get pencilled in for slaughter might instead be given the chance to get back in calf.
According to MLA, the number of cattle on feed in 2017 reached record highs.
Anticipating a supply slump in the latter half of 2017, processors were encouraged by low grain prices in the early part of the year to hedge this risk by putting cattle on feed.
Producers were also ramping up their use of feedlots as a drought strategy and the combined impact of this saw the number of cattle on feed climb to over 1 million head for three consecutive quarters.
The impact of this sustained spike in cattle on feed has been in grainfed exports and will continue to flow through until numbers drop.
In 2017 Australia’s tonnage to Japan ballooned from a 14-year low of 264,000 tonnes in 2016 to 292,000t despite intense competition from the US.
DAWR’s January export figures indicate the strong run of product into Japan is continuing.
There were 16,613t shipped for the month, which is the highest January volume since 2013 and 16 per cent up on January last year.
No doubt the tariff advantage Australia enjoys over the US due to JAEPA and the triggering of safeguard for frozen beef are playing a part.
The snapback tariff increase to 50pc has affected non-EPA countries (US, Canada, New Zealand) since July last year and will run through until the end of the current Japanese fiscal year on March 31.
This has provided Australia with a 22.8pc tariff advantage over this time.
However all that is set to change with the expected signing of TPP in March this year. Once signed, member countries will presumably waste little time in passing legislation to ratify the deal and of course there is still the question as to whether the US will come back in as a party to TPP or pursue bilateral deals instead.
Also it is important to realise the underlying strength of the US trading position in beef due to its almost fully rebuilt herd and commensurate lower cost of production.
This position allowed the US to achieve a 28pc increase in beef exports to Japan in 2017 of 53,000t (USDA/USMEF year-to-date figures to November) despite the massive tariff impost for a large part of the year.
In comparison, Australia’s increased tonnage for the full year (with its tariff advantage) amounted to 29,000t or 11pc.
No doubt there are quality and brand loyalty factors in the mix but there has to be very significant competitive pressure building on Australian exporters to supply lower cost product into this market.
Rain and dollar falling at right time
WHILE the rain will cause some short-term supply issues, the benefit it will bring to the supply picture in the second quarter is huge.
This is the view of one major processor I spoke to early this week.
MLA’s kill figures for last week are an indication of the unusual depth of supply in the first quarter this year and that suggests any setback from the rain will be short lived.
The eastern states figure climbed from 112,000 the week before to 131,000 last week, a level that took until mid-May last year to reach.
Queensland accounted for a large part of that with a 7000 head increase to 64,000 but so too did the southern states.
New South Wales jumped 6000 head to 34,000 for the week and Victoria soared to 25,000 head, a figure not seen since mid-2016.
One major processor is believed to have moved fairly quickly with a 10c/kg price rise but it is not known how far out that money applies.
Others may follow later this week which will take indicator 4-tooth ox to around 480-490c/kg and heavy cow to 420-430c.
The A$ retreating below US80c gave the sales desks cause for a little optimism but the big challenge will come mid-year when the US is expected to ramp up its production volumes with commensurate price threat in shared global markets.