MLA warns of uncertainty in beef future

The latest MLA industry projections in the mid-year cattle industry update show widespread rainfall has reinforced the expectation of tighter cattle availability over the coming 12 months, sparking fierce restocker competition that has led to a sudden surge in cattle prices.

Global beef prices have softened further from their record highs in 2015, MLA reported contributing to the "cocktail of uncertainty".

Predictions market information manager Ben Thomas said historically low cattle availability combined with rain to most key producing regions had resulted in an extraordinary surge in cattle prices.

Mr Thomas said factors including the encouraging rainfall outlook, expectations of abundant feed availability during spring and strong restocker competition would contribute to tightened availability as rebuilding of the national herd continues.

"Slaughter cattle availability for the remainder of the year is expected to tighten slightly, with the 2016 forecast revised down to 7.4 million head - the third lowest since 1996 and a fall of 18 per cent from 2015," Mr Thomas said.

"With females as a proportion of total slaughter already sitting below 50pc, it confirms that the herd rebuild is underway.

"We're forecasting that this will dip to as low as 44pc, as it did in previous rebuilds. "

As projected in the January cattle projections, a significant lift in average carcase weights has occurred this year - largely on the back of a higher proportion of cattle on feed, lower stocking rates when a widespread break occurred and a higher proportion of male cattle being slaughtered.

Considering the average weights are already up 3pc year-on-year, a small upward revision to 2016 average adult cattle carcase weights is included in the July projections, exceeding the record set in 2012, at 288 kilograms/head.

"In terms of production, beef and veal production is expected to be 2.17 million tonnes cwt, down 15pc ," Mr Thomas said.

"We are forecasting that 2017 will be the lowest in red meat production since 2003 - at just over 2mt cwt - although the heavier carcases will see a stronger recovery in production in the following years."

In WA, Muchea Livestock Centre steer prices jumped from 340 cents/kg this month from last year's 280c/kg.

While beef cows dipped in price in January, the prices made a strong comeback, reaching 270c/kg in May and stayed consistent, in comparison to July, where beef cows only reached 225c/kg.

Elders reported than demand has continued to stay strong, with recent weather playing a factor in supply across the State.

Live export, processor and restocker orders remained strong and in tough competition.

MLA reported only subtle changes to the April cattle slaughter and beef production projections.

Mr Thomas said producers needed to be mindful of the price adjustment that will eventually occur as a result of the lowering export prices, and eventual recovery in beef production in Australia.

He was it was unclear exactly when this will happen, and to what extent prices will go down in the next cycle, but it is something that producers should be wary of while making longer term cattle investment decisions with restocking prices at such high levels.

WA Beef council member and Indago Solutions director Steve Meerwald said while MLA predicts prices would ease, he couldn't see WA's herd size growing quick enough to affect prices.

He does expect to see WA's usual seasonal correction at the end of the year.

"It is likely to be similar to last year," he said.

"There is a lot of pasture in WA and a lot of procurement of cattle, so we may see that drop in price.

"But it's not going to last long, like last year, it should step up again into the new year.

"I do agree with MLA, but I can't see it happening any time soon."

Slaughter cattle availability for the remainder of the year is expected to tighten slightly more than predicted in January, with the 2016 forecast revised down to 7.4m head, a fall of 18pc from 2015 - 7.6m head was predicted in January.

The lower proportion of female cattle slaughter indicates the commencement of national a herd rebuild.

The latest data indicates the rolling 12 month average female proportion of the adult kill was only 48.6pc, down from the peak in of 50.6pc during 2015. Female slaughter, as a proportion of the national kill, is likely to continue drifting down to below 44pc as full rebuilding takes place.

Better seasonal conditions should see improved branding rates and fewer on-farm losses, which combined with the expectation of lower slaughter numbers than anticipated, should go a long way to assisting the herd recovery.

The Australian cattle herd is forecast to edge slightly higher by June 30, 2017, to 26.2m head.

Mr Thomas cautioned producers that there are factors at play against the high prices that will inevitably put pressure on the market.

"We always need to be aware that Australia is in a global market," Mr Thomas said.

"In Australian dollar terms, heavy steer prices are about as close to United States prices as they've been in 11 years. Cheaper South American product will represent more serious competition for market share in some of our existing overseas markets.

"Ultimately though, 2016 will see price support continue for Australian cattle but the price pressures will mount at some point. "

Restockers looking at paying 660c/kg for young steers will need to consider how many kilograms they can add, and how quickly, in order to profitably utilise the expected abundant supply of spring feed.

The world cattle market remained in two different leagues.

Australian cattle prices in a global context were closely aligned with North American grainfed production and the grassfed systems used across most of the rest of the world.

Canadian and US indicative prices are significantly higher than their global counterparts, despite having softened from their highs in mid-2015 and production expectations for the remainder of the year suggest that the weakening market will continue.

In Australian ((xA2))¢/kg lwt terms, the South American markets are strengthening on the back of improved market access for Brazil and Argentina and contracting supplies in Uruguay and Paraguay.

While all of these markets have generally improved in recent months, they continue to lag those elsewhere in the world, largely as a result of weaker currencies.

MLA predicts it is unlikely average Australian finished cattle prices will overtake the US and become the dearest cattle market amongst the major exporters, largely as a result of the greater trade exposure and significantly fewer grainfed cattle.

But the very narrow gap may in fact continue to tighten, based on the diverging production situations in the respective markets, while weak currencies will keep South American cattle prices below Australian prices for the foreseeable future.

While coming very close to US cattle prices may be deemed as a milestone for Australian producers, it could also be an indication that a ceiling has been reached.

Australian beef and veal exports for the year to June have receded with production and are down 18pc year-on-year, at 528,599t swt.

Encouragingly, the chilled (higher valued component) was down to a lesser extent than the frozen volumes, with the chilled volume at 144,947t swt, down 9pc year-on-year.

The projected volume for 2016 remains just above 1mt swt, down 20pc from the back-to-back record years, but still be the fourth highest volume on record.

Looking beyond 2016, shipments will more than likely contract with production again in 2017, before slowly gaining momentum from there and reaching 1.17mt swt in 2021.

China continues to demand a historically high proportion of Australian product, with industry suggesting the northern hemisphere summer should continue to drive imports.

But competition in China is growing and latest Global Trade Atlas data suggests May export volumes from Brazil to China were 20,286t swt, compared to Australia's 8,433t swt during the same month.

The Brazilian volume totaled 168,900t swt since re-entry in June 2015, compared to Australia's 128,083t swt over that same period.

Australian live cattle exports for the year-to-June were down 12pc year-on-year, at 630,547 head, causing the forecast for 2016 to be revised to 1.1m head, from 1m head forecast in April.

The revised estimate remains significantly below (17pc) the number exported in 2015, but will still be the third highest on record.

Live cattle exporters, along with processors, are anticipating that the number of cattle available will become particularly tight as the year progresses, especially as the northern attention turns from liquidation to herd rebuild.

Indonesia remains the largest market for the year-to-June, with 313,529 head exported, down 14pc year-on-year.

Numbers to Vietnam are also historically high, at 125,178 head, while shipments to all other major markets were up 19pc year-on-year at 141,769 head.

During June, the Darwin live feeder steer indicator was 325c/kg lwt, up 28pc year-on-year, while steers delivered to Townsville were 285c/kg, up 30pc.