OVER THE HOOKS
BEEF exports continued their strong start to the year through the month of February but heavy, late-season rain may now steady the flow of cattle through March, a month when there is usually a significant step-up in slaughterings and export production.
Latest DAWR (Department of Agriculture and Water Resources) figures indicate total beef exports for February will be around 83,000 tonnes. Actual figures at time of writing show 76,825t to February 26.
That puts the 2018 progressive at around 18,000t or 14pc ahead of same period 2017.
Carryover of good supplies of finished cattle from late last year has been one driver of the stronger opening-months trend this year and that in turn is largely due to the good rains received in Queensland back in October.
But perhaps an even more significant factor has been the drier than usual conditions in southern parts of the country. This has driven up slaughter levels particularly in Victoria to the point that the kill there for the first nine weeks of the year is up by almost 20pc.
Weekly slaughter figures compiled by MLA show the progressive national (eastern states) kill is up by 60,000 head but more than half of that increase (33,000 head) has come from Victoria.
The relative abundance of cattle in the south is showing up in saleyard prices with meatworks rates significantly lower than those prevailing in Queensland.
Bullocks at Pakenham on Monday averaged 265c/kg while Toowoomba recorded an average of 292. Similarly Toowoomba’s heavy cow average of 235c was well ahead of Wagga’s 219c.
As well as this heightened early flow of pasture cattle, feedlots are continuing to push out significant numbers and this is impacting the mix of high quality and manufacturing product to respective markets.
Noticeably Japan continues to lead as Australia’s single largest destination with around 23,000t in February compared to the US which took just 17,000t of Australian beef.
This year’s January tonnage to Japan was the highest since 2013 and coupled with February’s strong showing has taken the progressive total thus far to 7pc higher than same time last year.
Australia has some significant tariff advantage in the Japanese market over major competitor the US at the moment and that is undoubtedly playing a part in what appears to be a continuation of the resurgence in trade seen in 2017. That year saw volume of beef exports expand to 292,000t from 264,000 the year before.
The bigger part of the picture however has to be the Japanese economy.
For a variety of reasons including global dynamics, monetary policy and a tight labour market, the economy has now expanded for eight consecutive quarters, the longest period of uninterrupted growth since 1980.
As a consequence, household consumption is being revitalised and beef is a beneficiary of that process.
However Japan’s main trading partner just happens to be China and the prospect of a trade war between the US and China could seriously upset global economic dynamics.
Forecaster Focus Economics sees the main downside risk to Japan’s continued economic growth as an abrupt slowdown in China and elevated geopolitical tensions that could strengthen the yen.
Australia’s third largest market Korea is also off to a good start with strong volumes in both January and February.
DAWR figures indicate around 12,000t for February which puts the progressive so far this year up 5pc on 2017.
However Australia’s upward trajectory in exports to Korea since 2013 has been limited by safeguard volumes and snapback tariffs imposed under KATFA (Korea Australia Free Trade Agreement). This safeguard has now been triggered three years in a row.
The most recent in October last year saw the tariff disadvantage between Australia and the US rise from 5.3pc to 16pc for the remainder of 2017.
The ‘fixed’ 5.3pc disadvantage arose because the US got its FTA with Korea (KORUS) in place two years earlier than Australia and that relative disadvantage will remain until 2027.
Also under KORUS the US has the benefit of much higher safeguard volumes. Their safeguard volume in 2018 is 306,000t while Australia’s is 167,327t. No surprise therefore that the US safeguard has not been triggered since their agreement entered into force in 2012.
With such competitive advantage favouring the US in this market it is hard to see scope for Australia beyond the safeguard volumes despite the strong reputation Australian beef has in Korea.
Rain slows kill
WHILE good rain in early February was not enough to impact kill numbers, this latest rain is another matter.
This change is not going away in a hurry and with the favoured areas now so full of water it will not take much to top up and flood again. Forecasts early in the week suggest another 15-50mm is possible for a large swathe of country around Boulia, Winton, Hughenden, Cloncurry and Mt Isa. Similar falls are expected in the eastern and southern Darling Downs, border regions between Goondiwindi and St George and the Dawson catchment to the north of Roma.
With the heaviest of the rain concentrated in the north and central north-west, the opening of Stuart meatworks at Townsville has been further delayed.
Lakes Creek and Biloela lost a day last week. Lakes Creek will miss Wednesday this week while Biloela will operate day-by-day. Nerimbera is expecting a full kill this week but Dinmore will remain day-by-day for the remainder of the week. Beenleigh is less affected.
Processors are looking to southern volume markets and feedlots to help plug the gaps and 10 cents was generally added to over-the-hooks rates early in the week taking indicator 4-tooth ox to 500c/kg and heavy cow to 440.
All of the processors I spoke to this week agreed the rain will be beneficial with supply now looking more assured from July onward.
