BEEF cattle prices are set to fire, but the trigger – rain – is jammed.
Rabobank’s head of food and agribusiness research Bill Cordingley was in Australia this week
to drop in on the bank’s clients and said once supply tightened there would be an “explosion” in prices.
“From a global perspective the beef market has never been better, so we could be looking at record prices in Australia once supply gets back to normal,” the New York banker said.
Even if our export volumes were to tighten, there were almost no other countries that could step in to fill the gap, he said.
“Overall there’s a global tightening of beef as many countries are already in herd rebuilding,” he said.
“For example, in the US, the female slaughter is down on this time last year and it will be some time before that market is back to exporting big volumes of beef.”
On the international front, Mecardo market analyst Angus Brown said the basic answer to the large spread between Australian and global prices was supply: the lack of it in the US, and abundance here.
Mr Brown said US feeder cattle futures hit record levels last month and to put this in perspective, the price was 42 per cent higher than the same time last year and almost double the price at the same time in 2010.
“The past two months have seen US feeder cattle prices rise nearly 60c/kg (14pc) in our terms, despite a strengthening Australian dollar,” he explained.
“The Eastern Young Cattle Indicator has rallied somewhat from early year lows, but that’s still well behind young cattle prices in the US.
“The main reason for the large spread between US and Australian prices is supply.”
Mr Brown said while Australia operated in a global market with prices largely set by international trends, the local supply and demand could distort this.
“Basic economics tells us despite how much processors might be getting for beef on international markets, they only need to pay the price the grower is prepared to sell at, which is obviously lower when feed is scarce and expensive,” he said.
Even so, Mr Brown said the medium and longer term outlook for cattle prices remained positive.
An early start to the wet season in Queensland flowing into NSW would put a halt to the flow of cattle onto the market.
This would see restockers return to the market, fuelling further competition.
“The longer we continue to slaughter our breeding herd, the better the outlook for prices when things turn around,” he said.
“While Qld and northern NSW markets remain depressed, some cattle types (all types in Western Australia, heavy steers in Victoria, SA and NSW, and live export cattle) are performing well.”
But even without widespread rain, Mr Brown expected eventually supply would tighten, leading to better prices.
“A lot could depend on the spring flush of cattle onto the market, too,” he said.
Many producers remain unconvinced as record beef exports’ inability to have a significant impact on local cattle prices continues.
Industry analysts cite limited restocker activity and the processor backlog as significant contributors, both of which are closely tied to the weather.
Widespread rain is therefore the missing ingredient, which, once combined with the global hunger for beef, has the potential to grow prices to record levels.
Late last month ABARES reported that – at an average of 294 cents a kilogram (carcase weight) – cattle prices for 2013-14 were at the lowest level in 16 years.
At the same time beef exports in the past financial year surged 17pc to a record 1.2 million tonnes (shipped weight).
This was attributed to the boost in demand from the US, China, Korea, South East Asia and the Middle East.
Meanwhile, producers just want to see these fundamentals kick into gear, as many are running out of cash flow, feed and water.