Analysis: Cow prices could tell real story of beef’s falling rates

The cattle industry is under the dual pressure of rising supply in Australia and falling beef prices in major overseas markets.

The cattle industry is under the dual pressure of rising supply in Australia and falling beef prices into major overseas markets.

It seems too simple an explanation, but the data suggests it is a basic supply-and-demand situation that has been responsible for the meltdown in saleyard values for cattle in recent weeks.

The cow market is a barometer of the health of the industry, with all grades of slaughter animals influenced by the performance of base frozen manufacturing meat.

The graph on this page shows the export price of 90 chemical lean cow beef (90 per cent red meat 10 per cent fat blend) sold into the United States. It has shed about 80c/kg since October and is still in retreat. With slaughter numbers in Australia ramping up again after a part herd rebuild, export processors have been able to pull back offer prices for slaughter cows to keep their margins at a comfortable level.

The graph on this page really puts the spotlight on the changing supply situation for beef and how the dynamic of the industry has shifted from being firmly in producers’ favour to being a market that processors have a lot more control over.

For example, in 2019 when the drought broke and kill numbers shrunk, the price Australian processors had to pay for cows converged and tracked a lot closer to the ruling export rate for frozen cow beef into the US.

Shift the focus to this year and it is evident the price gap between the two lines has widened as the pressure weakens for processors to find enough cattle to slaughter.

The latest information to come out about saleyard cattle and kill supply, based on figures collected by the National Livestock Reporting Service, shows:

•105,093 cattle were processed across Australia last week, the highest kill recorded so far this year and up 9 per cent on a year ago. It is only the fifth time this year that slaughter has managed to creep above the 100,000 head mark;

•20,082 animals were included in the Eastern Young Cattle Indicator in a single day last week, the highest volume since April 2019, showing how the availability of young steers and heifers has increased as the herd rebuilds; and

•220,000-plus cattle were yarded at major saleyards during November, the highest auction throughput recorded for two years. It marked a 49 per cent increase on saleyard numbers in October which were restricted by severe flooding in many areas.

At the same time as cattle supply has ramped up, trading conditions for export beef have weakened.

Increasing turnoff in Australian is coinciding with the drought-induced supply surge in the United States.

A core issue is the ongoing drought in the US, which has led to record cattle kills in the region, feeding into a build-up of frozen meat stocks in the nation, and putting more high quality American beef into markets such as Asia, which competes directly with Australian product.

Preliminary figures for shipments of beef out of Australia in November show a 7.9 per cent decline in export sales to just below 70,000 tonnes.

American market analyst Len Steiner, who is in Australia this month, said trading conditions were difficult across a range of export markets, to the extent some beef cuts in the US were being dumped into grinding beef.

It is partly because freezer space is currently very tight in the US with the latest cold storage figures issued by the USDA estimating there were nearly 510 million tonnes of beef stored, 7.6 per cent higher than a year ago and 3.5 per cent above the five-year average trend.

Mr Steiner said with limited demand and options to freeze, US meat packers had “little choice but to sell some cuts at grinding beef value”.

He outlined some recent price changes for secondary meat cuts from carcasses that had fallen by 10 to 22 per cent in the past month, including beef knuckles, clods and flats.

“There has been a sudden and sharp decline in the price of fed round and chuck cuts and packers are asking for bids (to place the product),’’ Mr Steiner said.

In the short-term Mr Steiner said the market was closely watching beef shipments from Brazil, amid speculation a lot of product was going into bonded storage to be released into the US early next year when the new quota and tariff allowances kicked in.

“We should see Brazilian beef export figures next week and that will help give us a better baseline for the flow of product to the US,’’ he said.

The picture it paints for Australian producers is that there is unlikely to be any significant price recovery for beef while so many supply-and-demand issues weigh on the market.