By Angus Brown | Source: USDA, NASS, Mecardo
The tide appears to be turning in US cattle markets. Since reaching a low point in 2015, US cattle slaughter has grown rapidly, but in recent months that growth has stalled. The implications for Australian cattle markets are not great in the short term, but positive in the medium and longer term.
US cattle producers have been through the price boom, and responded by growing the herd. The subsequent increase in cattle production saw prices fall, and now we may have reached a level where cattle producers are not prepared to grow production further.
Figure 1 shows monthly US cattle slaughter, which from the lows of 2.4 million in 2015 has grown 8% to average 2.67 million head over the last 12 months. Eight percent doesn’t sound like much, but it adds 3 million head to annual cattle slaughter, which equates to around 40% of Australia’s total cattle slaughter for 2017.
The growth in cattle is starting to slow however. The first four months of 2018 has seen US cattle slaughter at similar levels to those of last year (figure 2). It seems US cattle producers have decided that current prices are not enough to warrant further growth in production.
Looking at US Beef Cow slaughter (figure 3) we see that from January to April it was 7% higher than the same time in 2017. Stronger Cow slaughter further suggests herd growth is slowing, but there has been dry weather in the US spring, which will obviously help push more cows onto the market.
Some other US data which has been making some news is the number of cattle on feed in the US. As of the start of May there were 5% more cattle on feed than at the same time last year. The heavy fed cattle inventory will have to hit the market over the coming months, but Steiner Consulting reports that demand for beef in the US is strong, and should soak up most of the extra cattle.
The strong numbers of cattle on feed are a worry for short term finished cattle supply into our high value markets of Japan and Korea. We are already seeing finished cattle values lower than this time last year, and despite heavier US supply we don’t think there is too much more downside.
In the medium and longer term slowing growth in US cattle supply is good for high value cattle markets, but a little negative for manufacturing beef. A move to a steady herd, or a liquidation will see more US cows on the market, which will decrease demand for imported manufacturing beef, our main export to the US.
In high value markets slowing US production means we might expect 450-500¢ to be the new benchmark for finished heavy and grainfed cattle price. This is 100¢ high than the pre-2015 benchmark, and this should lead to profitable cattle businesses when seasonal conditions are more favourable.
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