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By Angus Brown | Source: MLA, World Trade Atlas, DAFF.
Key points.
· Beef exports continue to run at strong levels, but export values are hitting records.
· The price per kilogram of beef exported has moved to a new higher level.
· Strong export demand points towards very strong cattle prices when supply tightens.
It has been a strong year for beef exports, and July continued the trend with volumes of beef exports heading for their second highest year on record. Beef export values are going even better. There is a bit of a lag in the data, but based on the first five months, the value of exports might hit a record this year.
July was another big month for beef exports, especially to China. Increased demand for protein in the wake of the African Swine Fever outbreak saw our beef exports to China jump 25% on last month, and 96% on July last year. Total beef exports were at their highest level since the heady days of the 2011-12 herd liquidation.
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It's export values we are interested in today. The data is lagged by a couple of months, but we are getting a picture of the biggest year for export values on record. A combination of high export volumes and high prices has the year to May export value sitting at $3.82 billion.
In the first five months of 2019, the amount of money coming in from beef exports has been 22% higher than last year, and 4% higher than the previous record year in 2015. Figure 1 shows the peak was hit in March, when $919 million worth of beef was exported.
Export value is a combination of volume and price, and while volumes aren't at a record, prices certainly are. Figure 2 shows export value in ¢/kg swt, which is simply the total export value divided by the volume for the month. We can see export values have taken a clear leap higher in 2019.
After finding solid resistance to export values above $8/kg for four years, four of the past six months have been above $8. December last year and March this year were above, or very close to $9.
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The 90CL indicator is also shown in figure 2, and as expected the two price series generally move together. As such, the 90CL is still a good general indicator of how export demand is travelling.
The ¢/kg price of beef exports to the US, Japan and China is shown in figure 3. There is plenty of variation but prices tend to move in a similar direction over the medium term. With increasing demand from China, other markets are being forced to pay more.
What does this mean?
Strong export volumes and strong export prices suggests strong demand. This is good news for cattle markets and is a good part of the reason cattle markets have held at historically strong levels during the latest liquidation.
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Record export values also give an indicator of the upside that might be expected when cattle supply does tighten. There is room for prices to gain plenty of ground with export prices moving higher. Add to that the spectre of higher export values with tighter supply and we are likely heading for new record cattle prices at some stage.
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