Restockers get beef sizzling

Restockers appear to be playing a big part in the cattle market's surge, forcing up prices by at least 20c/kg week-on-week at many NSW centres.

That's in addition to the fierce demand from processors who continue to fill export orders at near record volumes.

At Tuesday sales across the eastern states the market was dearer and supply had little impact on keeping a lid on buyer competition.

Carcoar in NSW was only a few cents off cracking an average of 600c/kg for young cattle, which was a boost of almost 40c/kg more than at the same time last week.

At Roma in Queensland, NSW restocker buyers were highly active in the market, according to the National Livestock Reporting Service (NLRS), and pushed lightweight yearling steer prices up 16c/kg (liveweight).

Light and mediumweight yearling heifer prices improved with solid demand from supermarket feedlot buyers, restockers, and southern processors.

At 530c/kg (cwt), the Eastern Young Cattle Indicator (EYCI) now sits 22c/kg (cwt) higher than Tuesday last week and 187.75c/kg more than this time last year.

At Wagga Wagga on Monday there was strong northern restocker activity from Coonamble across all lighter weight categories as well as orders from the south of the state.

Major feedlots from NSW and Victoria competed for yearling steers meeting their specifications.

In fact, the NLRS said feedlots were keen to buy the better finished mediumweight trade steers, which resulted in domestic buyers paying substantially more to secure numbers.

Some centres, such as Forbes and Wagga, are more than 200c/kg dearer than rates at the end of June 2014.

The hunger for Australian beef exports remains the underlying driving force for local cattle prices, with the US firmly on the minds of exporters.

Rabobank analyst Angus Gidley-Baird said tight availability continued to support US prices, while aggressive heifer retention only further tightened the availability of feeder cattle.

"Record-breaking rain across the centre of the US grazing areas is allowing producers to retain cattle on grass," Mr Gidley-Baird said.

He said the US was expected to have ample feed supply, further supporting the market, and feeder cattle prices would peak in August-September.

With all the record breaking activity, Mecardo analyst Augusto Semmelroth has reviewed how the domestic market will be influenced by US cattle prices in coming years.

This year marked the first year of a new US cattle cycle, which has been characterised by strong female retention, tight domestic beef supplies and a surge in beef import demand.

Mr Semmelroth said Australia, on the other hand, continued to liquidate its breeding herd at an alarming rate and had become the best placed country to ship unprecedented volumes of lean (manufacturing) beef to the US.

Looking at USDA's long-term projections, he said it became clear the US wouldn't be able to ramp up production in the near term.

This would support ongoing import demand until the end of the decade.

To assess how these factors would play out in the domestic cattle market, Mr Semmelroth looked at the historic correlations between US and Australian cattle prices.

The two markets have run in parallel for more than 40 years, the link only broken in the years since 2012, when drought-induced turnoff of cattle in Australia took prices down while US prices shot up in response to supply shortages and global demand.

Mr Semmelroth expects the tight correlation between the two markets to resume after a rapid Australian price correction in 2015-17.

If that happens, future Australian cattle prices could be mapped against future US cattle prices - and USDA forecasts out to 2024 put US cattle prices about US350c/kg (liveweight) over that period.

Mr Semmelroth said if the historic US-Australian cattle price links were rebuilt, that supported a conservative forecast of the EYCI at 600c/kg.

But if seasons were better than expected, the market could expect cattle supplies to tighten further, and prices to go higher.