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Thursday, February 27, 2014

Northern cow markets unlikely to repeat 2013 to May

By Augusto Semmelroth  |  Source: MLA, ABS, Steiner

Key points

  • Female cattle slaughter almost reached 4 million head in 2013 and continues to be high in the first two months of 2014.
  • Queensland’s cow prices fall 11% on average between now and May, although last year they fell 30% to a low of 190¢/kg cwt.
  • Cow markets have been supported by record 90CL Frozen Cow prices to US, a situation that is likely to be continued in the next few months.

2014-02-25 Northern Cow Markets Are Unlikely To Repeat 2013 FIG 1

2014-02-25 Northern Cow Markets Are Unlikely To Repeat 2013 FIG 2

2014-02-25 Northern Cow Markets Are Unlikely To Repeat 2013 FIG 3

Ongoing drought in Queensland last year saw cow prices plunge 30% to 190¢/kg in May, an 11-year low. On average, the drop between March and mid-May is around 11%. Will northern cow prices buck the average downside trend towards the end of the wet season this year?

Underpinned by a drought-stricken east coast, Aussie female cattle slaughter surged 23% year-on-year in 2013 to 3.95 million head, the second highest level on record. As a percentage of total slaughter, numbers moved back up above 47% after tracking around 43-43.5% throughout the stock rebuild phase of 2011 and 2012.

While the official statistics for January are yet to be released by ABS, MLA’s weekly slaughter numbers continue to point to record high killings at the start of this year. According to MLA stats, the average weekly Queensland female slaughter rates for January were still 56% higher year-on-year. As for February, the month-to-date stats show weekly numbers also averaging 35% higher than year-ago levels at 37,462 head.

On average, Queensland’s female slaughter continues to increase between now and May as producers get rid of unwanted stock in the second half of the wet season. As a result, cow prices see an ongoing downtrend in the order of 11% by May. Without a favourable finish for the wet season in 2013, cow slaughter surged 14% above average levels in May last year to see prices plummeting 30% below March levels to a low of 190¢/kg cwt (figure 2).

This year, Queensland cow prices collapsed 17.5% in the first three sale weeks, but have almost recovered these losses since to reach 258¢/kg cwt last week. Although still quoted below the corresponding week in 2013, prices are only 5% below year-ago levels.

Giving a floor to cow markets in the north is certainly the robustness of the export demand for lean beef in traditional and non-traditional markets. The 90CL Frozen Cow indicator (US) is now quoted at only 1¢ below the record high of 474¢/kg FAS and is 14% higher year-on-year (figure 3).

Last year, 90CL Frozen Cow prices fell below 400¢/kg FAS in May, which aggravated the performance of cow markets then. This year, 90CL prices are expected to remain high in the short-term. This is the result of above average contraction in cow supplies since January and a surge in the US domestic 90CL prices. The latter are now at a 17% premium to our exports, a rather unusual scenario. 

What does this mean?

While the key driver for higher prices is still missing (ie rainfall), there are a few reasons to believe 2014 will not repeat the undesirable movements of 2013. The most compelling one is the healthy state of international lean beef markets and the prospect of ongoing high prices for the short term.

The second positive factor to support cow prices in the north this year is the expected tightening of cow supplies. Although this will vary substantially according to the rainfall pattern over the next three months, it’s quite unlikely that cow slaughter will move to 2013 levels by May if we get average (or slightly below) rainfall until then.   

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