By Angus Brown | Source: ABS, MLA, CME, Steiner
We outlined the main forecasts from MLA’s Cattle Industry Projections mid-year update last week. In a way, we were telling you about the labour. Now here is the baby: prices will likely rise 40-60% for most cattle types.
Supply is a key driver of prices in cattle markets. As outlined last week, when the northern drought breaks, the pull back in cattle supply is going to be significant (figure 1). The Australian cattle market hasn’t seen a pull back in supply of this proportion in the last 20 years, so it’s hard to know what impact it will have on the market.
What we do know is that cattle slaughter is expected to be similar to the levels of 2010-2012. We also know where prices were relative to international benchmarks, and we know where those international benchmarks are now.
What we don’t know is where international beef price will be in six or twelve months, or two years’ time. However, US Feeder Cattle and Live Cattle futures suggest that US cattle prices are likely to be relatively flat at current high levels out until the middle of 2015. US Live and Feeder Cattle futures have historically had a good relationship with imported 90CL beef (figure 2), which is one of our main exports. Moreover, MLA expects it to become our main export market over the coming year.
Figure 3 shows the yearly average price of 90CL beef exported to the US in A¢/kg and the Eastern Young Cattle Indicator (EYCI) over the past 18 years. Historically, the two prices have tracked closely together in all years except Australian drought years, with the spread opening up to record levels in 2013 and 2014.
From 2005 to 2012, the EYCI traded in a relatively narrow range compared to the 90CL price, and at higher levels than pre-2005 as a result of our better access to Japanese and Korean markets, which saw the 90CL US market become a less important impact on our price.
Over the past two years, the US has gained better access to Japanese and Korean markets. This, along with strong demand from the US, has seen the 90CL price become more important to our market again. We expect the EYCI to go back to trading at a small discount to 90CL export prices, in the 0-50¢ range, but higher if local restocking demand is strong.
If we assume that the 90CL beef price remains around the 500¢ level, the EYCI could potentially exceed, and consolidate at 450c/kg cwt, which is around a 40% rise from current levels. If seasonal conditions allow herd rebuilding to occur in earnest, the EYCI will reach 500¢/kg cwt, or a 50% price rise. If lower supply from Australia pushes up international beef prices, we could see values appreciate even further.
The factors limiting price rise will be lower consumption in Australia as consumers baulk at higher prices, and also whether high value export markets are able to continue to consume our beef at what are inevitably going to be higher prices.
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.
Mecardo will send you its latest market analysis outlook delivered to your Inbox as it's published. You will also receive one month Premium access for free.
You tell us what information you want to hear about, so you'll only be alerted to information that is relevant to you.Learn more about Mecardo Sign Up Now!