Why what’s happening in Japan and the US affect rates here

Big shifts in the needs of some of Australia’s major beef customers could explain part of the reason why saleyard rates are down.

Less Australian beef is going to Japan, and more is being shifted to the United States.

The New Zealand industry is trying to find other markets outside of China, high volumes of meat in freezers, and collapsing chicken prices in the US.

It is an interesting mix of factors, but combined, they are feeding into the suppressed price rates for heavy export cattle in Australian saleyards, according to analysis from leading US market commentators Steiner Consulting.

While overall beef exports from Australia are tracking higher this year in tandem with the increased cattle slaughter, the devil is somewhat in the detail.

Sales to Japan – a critical high-value Asian market for Australian beef – are down by nearly 10 per cent this year, with shipments in June the lowest for this month for a number of seasons.

Source: Included

Exports to China have recovered since the Covid-19 disruptions, but the latest data suggests the Chinese market needs help to maintain its pace. It is evident by New Zealand, which has built its beef exports around China in recent years to the point of disregarding other markets, starting to push more products to other countries.

In what is not good news for Australian cattle producers, Len Steiner this week described demand from crucial Asian beef markets as being weak and “underwhelming’’.

He cited some concerning data coming out of Japan. The amount of beef in cold storage at the end of May in Japan was estimated at 34,000kg – the stockpile 27 per cent higher than a year ago and made-up of nearly all imported beef.

“Rising beef inventories in that market suggest the slowdown in demand is resulting in more and more supply getting backed up in the supply chain,’’ Mr Steiner wrote this week.

“It should not be a surprise, therefore, that Australian and New Zealand exports to this market have slumped and will likely remain soft in the near term.’’

Australian beef exports to Japan in June were listed at 18,831kg, down 16 per cent of nearly 4000 tonnes from a year ago (see graphic this page). It followed a slow May when sales from Australia were down 24 per cent and NZ 48 per cent.

Steiner Consulting is forecasting Australian beef shipments for this July to remain suppressed at 12 per cent below a year ago.

And like a domino fall, there has been flow on effects as beef is deflected away from Japan and other Asian outlets. The US is now being hit with extra volumes of beef, affecting values in that key market.

As the graphic on this page also shows, Australian beef exports to the US have ramped up. Figures published by the USDA Agricultural Marketing Service imports into America of both fresh and frozen beef from Australia and New Zealand in the past three months have been 37 per cent higher (equal to 37,000kg) compared to year-ago levels.

Imported grinding beef prices are now tracking at a significant discount to local manufacturing beef values in the US. The latest figures have 90 chemical lean grinding beef from US cows tracking at US293c/lb, compared to imported product at 230c/lb for a difference of more than 50c/lb.

To show how unusually wide this is, last year, the two indicators were much more tightly aligned at US272c/lb for domestic 90CL compared to 266c/lb for imported product like that sent in from NZ and Australia.

All this data sheds light on why saleyard prices for cows and heavy slaughter steers have not gained much traction this autumn and winter. And it also hints at ongoing headwinds into the spring, particularly as the slaughter of grass-fed cattle will ramp up.

The other issue concerning struggling grinding beef prices in the US is the collapse of chicken meat prices.

Steiner this week reported chicken breasts at US$1.15/lb, down from a peak of US$3.60/lb a year ago. It follows reports of a build-up of chicken breasts in frozen storage across the US, estimated as 30 per cent higher than in 2022.

Chicken competes with hamburger mince in the fast food industry, and its low price point is being argued as a reason why grinding beef in the US hasn’t been as bullish as expected as the American cattle industry comes out of drought.

Mr Steiner said the competition from low-cost chicken was set to continue next year, with production forecast to increase despite falling prices.

“US chicken producers appear intent on grabbing more market share from their competitors, be this beef at food service and retail, or pork mostly at retail,’’ he surmised.

“Even as chicken breast prices are down substantially from a year ago, chicken producers have increased the size of the hatchery flock.’’