By Matt Dalgleish | Source: MLA, Steiner, ABS, DAFF
As the final quarter of 2015 draws to a close, we have seen a noticeable winding down in US demand for export beef. This is largely due to the tariff quota nearly reached, domestic slowdown in supply available for export and a correction in 90CL export prices. However, it doesn’t appear all doom and gloom for exports. As the USA takes a breather, other overseas markets have stepped in to fill the void.
Cattle slaughter levels down 19% for November year on year in Queensland have led the fall in east coast slaughter levels, which has fallen 16% year on year. This fall in supply for the month in the domestic market has flowed through to a reduction in exportable surplus. And when combined with softening demand for export beef out of the US, this has led to a subtle shift in the recent composition of market share for the export sector.
US supplies and beef inventories appear to be at more comfortable levels than earlier in the month when an export surge caused a rally in the 90CL price. Some rationing of demand has set in as the yearly quota is nearly exhausted and the 90CL has retraced the recent gains (figure 1). US demand is expected to remain soft for the rest of the year until the new quota begins again in January 2016. Indeed, the percentage change in the last three months for exports (compared to year ago levels) to the US have dipped into negative territory after a sustained time in positive for the majority of 2014/2015 (figure 2).
Relatively poor export pricing into the US has led to a reshuffle in export product towards other markets, particularly Japan, Korea, China and other overseas markets (figure 3). Robust export pricing into Japan and Korea is a positive sign. In addition, the favourable level of the A$ should support the export beef industry into 2016, particularly if the currency continues to soften as most market pundits predict.
Similarly, as the US is a competitor for Australia in beef exports into Asia, a strengthening US$ on the back of recent interest rate rises in the US should continue to create favourable opportunities for Aussie export beef into the medium term.
The recent reduction in beef exports to the US is largely a function of a wind down in US demand caused by export quota combined with the domestic seasonal cattle turnoff affecting stock available for export. In addition, the fall in 90CL price has placed pressure on processor margins leading to a drop in demand for cows.
As we move into 2016 export levels to the US are expected to remain below the levels seen this year as supply begins to tighten once the herd rebuild phase begins. Increased rates of cow retention should point towards a continued softening in export of manufactured beef and CL product. Moreover, favourable seasonal conditions in the north in early 2016 should also act as a dampener on exports.
The shift in market share towards Asia and other non-US markets for Aussie export beef supported by recent robust prices, particularly in Japan and South Korea, is likely to trickle down into feeder cattle prices. This is because higher feed lot margins should allow them to bid more aggressively for store cattle.
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