NATIONAL Australia Bank economists believes cattle prices will stay high for the remainder of the year, especially if the rain continues, but the risks to the outlook into 2017 are increasing.
NAB’s September rural commodities wrap says rain has continued to drive restocker interest in red meat, with cattle prices remaining at record levels and lamb defying the usual spring price drop.
Agribusiness economist and report author Phin Ziebell said the activity in the cattle restocker realm of the past couple of months had been extraordinary.
“The Eastern Young Cattle Indicator (EYCI) wasn’t expected to go this high, given what is happening internationally,” he said.
“To run through the 700 (cents per kilogram carcase weight) mark that quickly, when global risks point to a downturn, was not expected.
“But the rains we’ve had, the fact they’ve been widespread, and the amount of feed coming on with spring has meant restocker interest was much stronger than predicted.”
However, the international picture, particularly what is happening in the US, is far more sobering.
“The United States Department of Agriculture is talking about big increases in beef production this year and next,” Mr Ziebell said.
“South American producers are getting into the global market much more than they have in the past.
“So if you look at where supply is at globally, that has to put downward pressure on cattle prices here and would have already done so if it wasn’t for the wet weather.
“Once that restocker interest comes off the boil, particularly if it dries out over summer, there will be change.”
NAB’s forecast is for the Australian dollar to hold up around the mid USD70c mark through the remainder of 2016, before easing to 70c by the end of next year and into the high 60s in 2018.
That USD5c decline, however, will not provide the type of support necessary to lift demand for Australian beef significantly, Mr Ziebell said.