World data shows Australian rates should be higher

If cattle producers thought the dive in prices this year was bewildering, they might find good reason in global beef rates.

The Australian saleyard price for heavy processing steers has gone from being the dearest in the world to now lagging with the global underdogs of South America.

It is a stunning turnaround in fortune that has set the industry back more than a decade, which is the last time Australian heavy steer prices were trending along with Argentina and Brazil.

The price correlation with United States steer prices, which is where Australian product should sit considering its high quality and food safety values, has gone out the window this year.

On the latest price data, supplied by Meat and Livestock Australia and converted to Australian currency, our heavy processing steers are nearly half the value of similar cattle in the US. The figures are around 300c/kg for steers in Australian saleyards compared to a rate of 580c for US cattle.

The graph below shows the trend-line for heavy steers sold in the US, Brazil and Argentina, dating back nearly 20 years.

It should be a wake-up call for producers as it confirms a lot of industry talk lately of Australian cattle being severely undervalued at present. Or, to put it more bluntly, farmers are allowing themselves to be ripped off as they chase the market down and virtually sell at any cost.

online artwork june 7 beef prices

As one exporter said recently when asked why export cattle – namely bullocks and cows – had managed to get so cheap: “Well, producers just keep sending them, even when we lower the price, they still keep sending them.’’

A simple but accurate enough statement of what has been going on.

No other major beef-producing country has had a major meltdown in cattle price like Australia has this year, as the graphic on this page shows.

US prices have started to lift as they come out of drought, with their steer prices showing a big upward trend in recent weeks.

South American cattle prices are still solid and following their usual pattern of minor fluctuations.

Yet Australian prices have plummeted. Some would argue that Australian steer prices went too high during our herd-rebuild after the drought, and they did track above US rates during 2020/21.

It’s one point of view, but now it appears there has been a massive overcorrection.

The other data set which screams that Australian cattle are undervalued is the grinding beef market into the US, which is a barometer of the health of international demand and trade for commodity meat.

The 90CL chemical lean cow price indicator (90pc red meat 10pc fat blend used to make hamburgers) continues to sit above 800c/kg imported into the US. It traded at this level throughout much of 2022 when saleyard cow prices in Australia consistently performed between 320c to 380c/kg liveweight.

To have the 90CL beef price into the US comfortably above 800c/kg and beef cows averaging 200c/kg liveweight is ridiculous, for want of a better word. At 200c/kg on a 51 per cent yield it works out to a carcass rate of around 400c/kg.

A gap of more than 400c/kg between the cost of a saleyard cow and the return for grinding beef into the US which sits at 841c/kg landed at present is huge, and usually only seen during severe drought periods which stock are being quit because there is no other option.

Historical data shows that the last time the saleyard price for cows was plumbing lows of 200c/kg was in December of 2019 – the end of a long dry period and in summer.

Which brings up one of the key points of this analysis – why have Australian cattle prices got so bad?

The Weekly Times chased down the global steer data to see if other countries have suffered big price set backs, yet as the graph shows they haven’t.

The Australian dollar is still reasonable at 66c/kg against the Greenback; export sales of beef are high and look solid into key Asian markets. Nothing stands out as being a major problem on the global demand side to have halved Australian cattle values this year.

Some analysts suggest Covid-19 issues and labour shortages at meat works have caused the damage, but surely those same workforce problems are evident in other countries where cattle prices haven’t collapsed.

Another suggestion was a shift to more farmers running cow operations rather than trading cattle as they chased the lure of $2000-plus weaners. This probably has some merit but arguably not enough to derail cattle prices to the extent being witnessed.

A lot of the problem seems to stem from how farmers have reacted en-masse to predictions of an El Nino season, wanting to sell down cattle numbers quickly as they hit the autumn and panicking when prices started to drop.

Farmers have been “throwing out the baby with the bathwater’’ is how one industry analyst described the phenomenon of reasonably sound beef market against the farmer scramble to sell cattle on a falling market.

This comment from another analyst: “It really kind of feels like people have freaked out a bit and just started selling, which is a shame’’. A shame because a lot of people have sold good cattle at very low money, giving the profit away to those further down the processing chain.

Agent Jamie Beckingsale, Nutrient at Mansfield, said recent weeks had been one of the most bewildering he had seen in the cattle industry, as it defied commonsense because it had rained, there was plenty of water around, plus decent amounts of grain and hay.

He coined a new phrase for it: El Nino-ed – the opposite of grass fever.

“I think everyone has been El Nino-ed,’’ he said at the Yea store sale last week.

Hopefully, this widespread and soaking rain can restore some supply control back to the industry, because as shown by the data, cattle prices don’t need to be as bad as they are.

Already this week, there were price jumps of 50c/kg for some feeder steers and heifers at prime markets on Monday.