Australian cow prices are sitting at record levels, fuelled by producer demand - but are they about to meet their match with softening US lean trimmings prices?
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On October 22, the US import price for Australian lean trimmings had fallen to USD 2.00/lb (AUD 6.21/kg), its lowest point since April. This was quite a drop from the highs of USD 2.45/lb (AUD 8.16/kg) seen in May and certainly from the phenomenal prices we have seen since, regardless of all the uncertainty in the market.
But despite the drop, this is still a good price. When you compare it to 2016 - the last time Queensland cow prices reached record levels - the average for the year was just USD 1.94/lb (AUD 5.76/kg) with a low of USD 1.77/lb (AUD 5.62/kg) - so USD 2.00/lb is not all bad.
Part of the reason that US import prices have fallen is that US domestically produced lean trimmings prices have also fallen. After peaking in April at USD 3.06/lb (AUD 10.27/kg) when COVID-19 had caused a shortage in US beef supplies, domestically produced lean trimmings prices have been on a downward trend, and now sit at USD 1.94/lb (AUD 6.05/kg). But there is no need to panic yet.
US domestically produced trimmings prices usually dip at this time of year. As the US heads into winter, beef and dairy producers take the opportunity to offload unwanted cows which generates more of their own lean trimmings production, and consequently the price of domestic lean trimmings drops.
So far the domestic lean trimmings price has dropped in line with the trend seen in 2016 and 2018, and while this is at the lower end of the five-year range, and below the five-year average, it is not the lowest yet.
The US has experienced drier conditions in the past couple of months that, together with the large cattle inventory, suggests we may see higher cow slaughter this year. But with stronger milk prices encouraging dairy producers to hold on to dairy cows, and some encouraging snow falls, weekly cow slaughter numbers are holding up quite well.
Slaughter numbers are higher than the five-year average, and still below what they were a year ago.
If this slaughter trend continues we expect the US domestic lean trimmings price to flatten out and see a slight increase for the remainder of the year.
Encouragingly, we are also seeing good sales results from quick service burger restaurants - a heavy user of lean trimmings despite COVID-19 disruptions - which should support demand.
So while we expect US import prices to now level out, challenges remain due to the high Australian cattle prices. The price spread between the US imported lean trimmings price and a Queensland cow is now at the lowest levels since late 2016.
Unless China buys up large volumes like they did last year (which looks very unlikely), pushing prices up, this reduced price spread is going to create challenges for the market.
