By Angus Brown | Source: NLRS, Steiner
Beef export prices to the US market have fallen heavily in recent weeks, losing ground in US terms, and even more in Aussie dollar terms. The trend in US export prices is not looking good, as it will act as a drag on cattle prices, but there is some hope.
Figure 1 shows that the 90CL Frozen Cow Export price to the US moved to within 3¢ of an 18 month low, hitting 544¢/kg swt. While the stronger Aussie dollar has ably assisted the recent fall in US export prices in our terms, price in US terms have also been on the wane.
Export 90CL prices in US terms have fallen 8.6%, with Steiner reporting that the fall has been due to importers using up stocks and going ‘hand to mouth’, along with rising offerings from New Zealand.
Stronger exports of 90CL from New Zealand are not unusual for this time of year. Figure 2 shows NZ Cow slaughter for the past two years, and the five year average. The lag in data reporting means we don’t have recent slaughter data, but it’s safe to assume NZ cow slaughter for March is three times the levels of the July to January period.
Figure 2 also suggests that there will be little relief from strong New Zealand beef supplies until June, when NZ Cow slaughter traditionally falls dramatically. The drop off in NZ slaughter no doubt helped see 90CL values rally in May and June 2015 to reach record price levels of 730¢/kg swt.
We have often pointed out the strong relationship between 90CL values and the Eastern Young Cattle Indicator (EYCI). Back in December the EYCI managed to avoid falling in line with the 90CL price as local supply remained strong. However, with the autumn flush of young cattle just around the corner, it could be expected that weaker export beef prices will be translated into weaker slaughter, and young cattle prices over the coming months.
It would be no surprise to see the EYCI weaken back to 550¢/kg cwt over the coming month, if supply begins to flow, and export prices remain around current levels, or weaken further. These is upside however, with the 90CL indicator hitting a similar low this time last year, before starting a rally to new highs.
Additionally, strong supply out of NZ will not last past June, and there is little scope for increasing cow supplies from Australia until the spring.
Normal seasonality see the EYCI weaken in April and May, before recovering in the winter. This year the prices swings might be stronger than normal, but we expect the direction will be similar to ‘normal’.
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