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Monday, March 24, 2014

Global cattle prices reaching record highs, except here

By Augusto Semmelroth  |  Source: MLA, CME, CEPEA

Key points

  • Global cattle prices in US$ terms have recovered strongly between 2009 and 2011. After that, country-specific results have become mixed.
  • In US$ terms, the US continued on the rise while Brazil and Australia embarked on a downtrend.
  • In their respective currencies though, Brazilian and US markets are reaching all-time high while our domestic markets are still close to their 10-year lows.


2014-03-21 Global Cattle Prices Reaching Record Highs FIG 1

2014-03-21 Global Cattle Prices Reaching Record Highs FIG 2

2014-03-21 Global Cattle Prices Reaching Record Highs FIG 3

Live cattle prices in the two largest producing countries in the world are reaching all-time records on the back of tightening supplies and firm domestic demand. From the lows of January 2009, cattle prices in the US and Brazil are 69% and 51% higher, respectively. The EYCI, on the other hand, is now 5% lower than January 2009 levels.

After falling considerably following the global financial crisis (GFC) in late 2008, global cattle prices quoted in US$ terms posted a steady recovery in the subsequent two years. The two largest beef exporting countries, Brazil and Australia, were the ones that benefitted most during the period (figure 1).

From the lows seen in early 2009, both countries saw their US$ quoted cattle prices surge as a result of rising domestic prices and appreciating local currencies. By early 2011, Australian and Brazil saw their respective live cattle prices (US$ terms) moving from around 220-240¢ to around US435¢/kg cwt, an 80-100% recovery (figure 1).

In the US, cattle and beef prices experienced a similar bullish trend. Between January 2009 and April 2011, live cattle and the 90CL frozen cow price moved 38% and 68% higher, respectively. However, in contrast to Brazilian and Australian cattle markets, the US has managed to maintain that positive momentum since.

Since April 2011, both Australian and Brazilian live cattle markets have lost ground in US$ terms. From a high of around US435¢/kg cwt, the Brazilian live steer price and the Eastern Young Cattle Indicator (EYCI) have fallen 24% and 54%, respectively (figure 1).

When looking at cattle prices in these countries, but in their respective local currencies, the trends are more mixed, particularly since mid-2012 (orange shaded area). While the US and Brazilian cattle prices are now reaching all-time high levels, Australian prices are not too far from their 5-year lows (figure 2).

To put these numbers into perspective, figure 3 shows the individual cattle market prices indexed from January 2009. The US is clearly ahead of the pack, with live cattle and 90CL prices 71% and 78% higher than they were in early 2009. Brazil is slightly behind but, with prices now 51% above 2009 levels, is catching up.  

As for Australia, after peaking at a 27% premium to the lows of 2009 on two separate occasions (April and November 2011), prices have steadily fallen since. As of last week, cattle prices were 5% below what they were in January 2009 (figure 3). 

What does this mean?

Live cattle prices have posted a stellar recovery in US and Brazil since the GFC, particularly in the US. While a similar trend was also observed in our domestic markets between 2009 and 2011, deteriorating seasonal conditions over the last two years has seen prices moving into a clear downtrend.

Global cattle prices will not always move hand in hand given the independent impact of seasonal conditions, market structure (domestic vs exports) and access to export markets. However, as the global beef trade picks up and demand for red meat improves in developing countries (Asia/Middle East/South America), large price disparities should become less common.

Our analysis suggests that Australian cattle prices are comparatively cheap to other major producing countries, especially at the farm gate level. It also suggests our domestic prices have a lot of room to recover in the medium-term once seasonal conditions improve. 

Mecardo information is provided to assist in your marketing decisions. It contains a range of data and views on the current market. It is not intended to constitute advice for a specific purpose. Before taking any action in relation to information contained within this report, you should seek advice from a qualified professional. The information is obtained from a variety of sources and neither Mecardo nor Ag Concepts Advisory will be held liable for any loss or damage whatsoever that may arise from the use of information or for any error or mis-statement contained in this report. 

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