A view from the buyer's side

A view from the buyer's side on cattle prices

Australian cattle prices could surpass those of other global beef suppliers when local seasonal conditions improve.

Australian cattle prices could surpass those of other global beef suppliers when local seasonal conditions improve.


How high could Australia's cattle prices go when there is widespread rain?


High cattle prices are not something people are talking about at the moment. Particularly as many cattle classes - especially the lighter younger cattle - eased lower through the month of September. But it came up in conversation on my recent travels through central Queensland and northern NSW with my colleague from China, Chenjun Pan.

We were discussing Australia's position in the China market, competition with other exporting countries and the sensitivity of the Chinese consumer to price.

How high Australian cattle prices might go when there is widespread rain across eastern and northern Australia is a discussion that would require more space than in this column, but let's take a look at how we stack up with some other global beef suppliers.

According to national livestock reporting data, current heavy steer (300-400kg cwt) prices in Australia are around the $5.40/kg cwt mark over the hooks.

Reflecting the shortage of finished cattle, the price spread between these heavier finished cattle and the lighter, younger restocking-type cattle is at the highest levels seen in over 10 years.

The biggest suppliers into the Chinese market are the Argentinians. In the first eight months of 2019, they exported 218,000 tonnes, occupying 22 per cent of China's beef imports. Brazil was the second largest supplier, exporting 200,000t and occupying 21 per cent of the market and Uruguay was the third largest supplier. Australia has exported 172,306 swt for the first eight months of 2019 and is the fourth largest supplier.

South American countries generally produce lighter cattle, so it is a little difficult to compare like-for-like animals, but a 520kg-plus steer in Argentina was selling for USD 1.18/kg in August.

These prices have remained relatively steady for the past 12 months, trading between USD 1/kg and USD 1.40/kg but the Argentinian peso has depreciated which has also improved their competitiveness into global markets. Brazilian cattle prices are currently trading at around USD2.60/kg lwt and Uruguayan cattle are trading at about USD 2.25/kg lwt.

With South American processing costs generally a third of those in Australia - and with transport only a fraction of the overall cost - this makes South American beef sold into China very cheap. (However, a transport 'cost' not factored into this consideration is the time taken for the product to arrive in the market from South American countries.)

South America is producing more of a commodity-style product. At the other end of the spectrum is the US, with a higher-quality product.

Currently in the US, with record numbers of cattle on feed and at the low point of their pricing season, fed steer prices are around USD 2.40/kg lwt.

Based on these other major export market cattle prices, Australian finished cattle prices are currently at the upper end of global beef suppliers. When we see local seasonal conditions improve and demand from producers increase, Australian prices will soon move beyond other global beef suppliers.

These higher prices will challenge exports and, in turn, are expected to curb the willingness of processors to pay 'overs' on stock. With more limited supplies and higher prices, Australia will have to work hard to maintain markets and create a value proposition for that global consumer.

- Angus Gidley-Baird is a senior analyst with Rabobank


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