Why drought conditions in the US is not good news for Australia

There’s been talk the low US cow herd and more drought is good for Australian beef but one expert at Beef 2024 urges caution.

Australia cattle producers should not hang their price hopes on the United States market as it continues to sell off its herd.

And while large amounts of Australian beef are still flowing into the US, re-emerging drought conditions have forced more cows onto the market.

This, and strong supplies of chilled beef from Mexico, could see the impact of a lower US herd fail to translate to a spike in demand for Australian beef.

Rabobank senior analyst animal protein Lance Zimmerman is based in the US and is in Australia as part of Beef 2024 at Rockhampton.

He said last year’s El Nino, which was expected to deliver good rains to North America, had failed to do so and many areas were now facing tough conditions again.

“I would say in a lot of cases, producer sentiment is pretty low,” Mr Zimmerman said.

This meant a continued sell off of female cattle, and no signs of a herd rebuild.

The cull cow rate was 12 per cent last year, against a long term average of about 10 per cent.

Mr Zimmerman said he expected the cull to slow this year, to about 10.7 to 10.8 per cent, edging closer to the 9.8-10.2 per cent figure where the herd is considered to be stable.

There is more positive news around US consumption though, which was at some of the highest rates in years.

“Post Covid in 20212022, we had a big lift in demand for beef in the US and beef sales in the first three months of this year are the second highest outside this period,” Mr Zimmerman said.

“Beef demand is holding really well.”

Traditionally, much of the demand for Australian beef has been for 90CL or grinding beef, which continues to be supplied by the sell off from the US herd.

Higher quality beef is difficult for Australian exporters, as the US market prefers chilled beef rather than frozen, Mr Zimmerman said.

Shortfalls were also being met by Mexico, which had expanded its herd from six to seven million breeding cows a decade ago to eight to nine million cows now.

And Brazil, which had a tariff free quota into the US of 65,000 tonnes annually, was always in the mix.

Mr Zimmerman said where Australian beef might make inroads is in the grass fed beef market in the US to the food service industry, a product US producers had found challenging to supply due to the dry conditions in the past few years.

The US herd rebuild, when it comes, is expected to be slower than it was after the last big US drought where the numbers built consistently in 2013, 2014 and 2015.

“At that time, we were in need of protein and it was a V-shaped recovery, but we are thinking the numbers will build this type in more of a bowl-shaped pattern,” he said.