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Tuesday, April 19, 2016

Japan saving our bacon (beef)

By Angus Brown  |  Source: MLA, DAFF, Steiner

Key points

  • Japanese export markets have remained relatively strong, helping to support total export values.
  • Relatively strong export prices to Japan have supported heavy steer values, and to a lesser extent the EYCI.
  • Strong beef export prices to Japan should continue to support cattle prices, and could help drag US 90CL prices higher.

2016-04-19 Beef Fig 1

2016-04-19 Beef Fig 2

2016-04-19 Beef Fig 3

Regular readers would know that we generally use the 90CL export price to the US as our benchmark beef export price. While it is a pretty reliable indicator, it obviously doesn’t take into account the prices of better cuts of beef exported to higher value export markets. This article takes a look at how export values to Japan are faring, and if they were to follow the US trend, what we can expect for prices.

Australia exports a wide variety of beef cuts to a vast array of markets. The reason we focus heavily on the 90CL export beef price is due to the fact it is one of the biggest single markets for our beef, and it has traditionally had a strong relationship with cattle prices in saleyards.

The 90CL export beef prices is a very good indicator for the lower end of the market, and while it does have a reasonable relationship with grassfed cuts exported to Japan, we have recently seen the markets diverge somewhat.

Figure 1 shows the 90CL export price to the US, the Grassfed Fullset to Japan along with the total Australian monthly export value, divided by the export volume.  The export value per kilogram gives an average beef export price, and understandably usually sits between the lower quality 90CL price, and the Grassfed Fullset.

During much of 2015 the export value was close to the 90CL price, as huge volumes of beef were exported to the US.  The 90CL export price to the US currently sits 18.5% below the July to September 2015 period, while the Grassfed fullset sits just 5% behind.  Falling export volumes to the US has seen more influence coming from the better quality end of the export market, with the total export value having fallen 12%.

Beef export prices to Japan in April are in fact still sitting 3% above the same time last year, while the 90CL beef export price is 15% behind.

The effect of the differing fortunes of Japanese and US export markets has impacted on cattle prices in saleyards.  Figure 2 shows that while Cows on the eastern states have borne the brunt of weaker US export prices, heavy steers, and to a lesser extent, the EYCI have managed to maintain relatively strong levels.

  

What does this mean?

The Grassfed Fullset export price to Japan has spent the last five months at a historically strong premium to the 90CL price (figure 3).  There is potential for the gap between the two values to close, either through the Grassfed Fullset falling, or the 90CL rising.  Obviously growers will be hoping to see the 90CL rise, and at this stage this seems more likely than the alternative, given the seasonal supply trends which hit in the winter.

Strong beef export prices to Japan should continue to support cattle prices, and there is some upside potential if the 90CL has a rally over the coming months.

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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