By Angus Brown | Source: USDA, NASS, MLA.
While many producers battle drought in Australia and the herd is likely to slip into decline once again, in the US, beef production continues to ramp up. The strong prices of recent times has seen growth in the calf crop and a very strong cattle on feed inventory. Here we look at how this is impacting US prices, and in turn, the possible impacts on our market.
The latest US cattle on feed report continues to point towards heavy supplies of beef coming out of North America in the coming months. The September report pegged the inventory of cattle on feed at 11.1 million head. September was the fourth month in a row where cattle on feed had been at a record for that particular month, it was 5.5% higher than this time last year.
In Australia we get excited when cattle on feed are over 1 million head. In the US, there were 650,000 more cattle on feed than this time last year. This puts our production into perspective and gives us good reason as to why we need to watch US markets for ideas about where our market might be headed.
The good news out of the US is that despite the heavy supplies of cattle and beef demand appears to be holding strong. According to the CME’s Daily Livestock Report, the ‘booming’ US economy and strong demand in export markets is seeing the extra beef being soaked up at higher prices. It is the middle and high value cuts which are in demand, while lower value cuts are cheaper than last year, as consumers with more money buy better quality beef.
The shift in demand is showing up somewhat in our markets, with the 90CL Frozen Beef export price similar to last year, while heavy slaughter cattle prices are stronger than last year.
Live Cattle Futures have held steady in recent months (Figure 1), albeit at levels lower than this time last year, as processors have no trouble sourcing supply. Cheap grain (compared to here) has seen Feeder Cattle Futures on the rise, so feedlotters must still be confident of turning a profit.
Key points
* The US Cattle on Feed inventory is at record levels for this time of year, with strong supplies of beef.
* Strong demand for beef in the US and export markets is supporting cattle prices in the face of increased supply.
* Price support is flowing through to our high value beef markets, helping them maintain a premium over last year.
What does this mean?
Figure 2 shows that the small rise in Live Cattle Futures in the US, when converted to Aussie dollars has actually been in the order of around 10%. While the short term price relationship is weak, over the longer term strong cattle prices in the US are nothing but good for our values. At the moment strong US prices, and a strong US dollar are seeing our beef competitive in high value markets. The QLD 100 Day Grainfed indicator price is close to a 14 month high, 10% above recent lows.
We also have some sort of buffer if the US economy slows down. During the GFC demand for manufacturing beef, our biggest export to the US, spiked as US consumers downgraded their quality.
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