By Angus Brown | Source: MLA, Steiner, ABS, Stats NZ.
This article is bought to you by McGuckin Transport.
Earlier in the week, Mecardo looked at beef exports and growing demand from China. It appears the stronger Chinese demand is having an impact on markets. This is especially for lower quality meat which might be a substitute for pork.
Read the link to the earlier export piece here.
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The 90CL Frozen Cow indicator tipped another leg higher in recent weeks. The indicator gives an idea of the price of 90% beef and 10% fat manufacturing beef exported to the US. This type of beef is not only exported to the US, Australia also exports 90CL beef to Japan, Korea and China, and as such, the US has to compete for its supply.
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The 90CL indicator in US terms has last week hit a 22 month high. Back in 2017 the market only moved above 220¢/lb briefly, and it was a further 18 months before that it was retreating from record highs.
The rally in the 90CL in US and AUD terms is now 24% from the October low and 11-12% above the start of the year. Figure 1 shows that in Australian dollar terms the 90CL is now at a 3.5 year high at 684¢/kg swt. In fact, the 90CL price is now only 60¢, or under 10%, from the record highs seen in September 2015.
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The Steiner US Imported Beef Market Report cited tight supplies for the recent price rise. It was noted, however, that tight supplies have not been caused by falling cattle slaughter. Figure 2 shows that combined Australia and New Zealand Cow slaughter in February was 57% higher than February last year. It’s been four years since combined Australian and New Zealand cattle slaughter was that strong.
The tighter supplies for the US are seemingly more a result of China booking up available beef, leaving lower than normal volumes for US buyers to compete for. Additionally, there are apparently further concerns over the coming short slaughter weeks and the impact on supplies. This is increasing urgency in the market.
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Key points
* Chinese demand for our beef has strengthened, pushing export beef prices higher.
* US beef buyers are having to compete strongly despite higher cattle slaughter.
* Strong export beef prices are good for cattle prices when supplies tighten
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What does this mean?
We often talk about the impact of export beef prices on local cattle prices and the relationship is historically pretty strong. At the moment there is somewhat of a disconnect between export beef and cattle prices thanks to strong supplies, but this is likely to revert if the season continues to improve.
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Stronger export demand and prices mean processors can pay more for cattle, and also adds upside for prices when supplies tighten. Given that, many cattle producers will be hoping Chinese beef demand remains strong for some time yet.
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