Kelly Country: La Nina key to beef hopes

JENNY KELLY, The Weekly Times December 26, 2017

LIKE the lengthy but vague horoscopes that appear each New Year for people, the outlook for the cattle market heading into 2018 depends on how you read the mix of negative and positive signs.

Along the lines of “as the moon shifts towards the Milky Way it could see Virgos receive a financial windfall”, if clouds appear over Queensland and the state finally gets a decent wet season beef prices could rally early next year.

Sorry Virgo readers, your bit was made up.

However, the season is going to play a key role in how the beef market tracks in the early months of 2018 as it will determine the supply of slaughter cattle to come out of Queensland and also demand for young replacements.

The latest forecast issued by the Bureau of Meteorology has weak La Nina conditions developing, which increases the chances of better than average rainfall over parts of Queensland and NSW in the next three months.

Wet conditions would slow the supply of female slaughter cattle, market analysts believe, as large numbers of northern beef producers are still understocked and are yet to complete herd rebuilding after the drought.

One prediction after the BOM forecast was that “above-average rainfall may maintain demand for young cattle in the short term and underpin momentum in herd rebuilding, particularly in northern regions’’.

As producers would be aware, cow prices limped to the Christmas break, with the national price average falling to 212c/kg liveweight.

The cow market has been under pressure from weakening US grinding beef prices, with an influx of frozen cow and bull beef from New Zealand affecting the market in late December.

Steiner Consulting, which reports daily on the US market, believed significant deals were done for cow beef from New Zealand into the US for delivery during late January and February, which could keep a cap on prices in the short term.

But Steiner also noted that the trade was highly dependent on a steady flow of product from both Australia and New Zealand.

“The pace of slaughter in Australia and New Zealand will be critical and any disruption in cattle flows could cause imported value to quickly correct and trade closer to the US market,’’ Steiner said.

Hence the importance of the northern wet season, as unless there is a major change to supply, cow prices at saleyards are unlikely to rally due to the subdued export prices currently on offer.

Looking at the big picture, Meat and Livestock Australia released a graph earlier this month that shows how Australian cattle prices have “re-aligned’’ to more traditional levels against US prices.

Presently, there is a 20 per cent price gap between US and Australian slaughter cattle, which MLA said marked a return to more normal levels after some turbulent results.

As the graph on this page shows, during 2014 and 2015, when Australia was in the grip of drought and the US beef market was at record levels, the price difference between the two countries reached more than 50 per cent.

Then in 2016 it reversed, as Australian prices went higher on low cattle numbers, and for the first time ever, US prices dipped below Australia’s.

Having Australian prices track under comparable US rates is not a bad thing. The US still rates as our biggest export competitor and having a price advantage is a helpful negotiating tool for exporters.

However, MLA noted Australian cattle prices were still tracking well above South American levels.

“While Australia appears to be back in synch with the US, currency movements and the growth in Australian cattle prices over the past three years have made South America a more competitive supplier to the global market,’’ it said.

“Up until 2015, Australia tracked relatively closely to Brazil, Uruguay, Paraguay and Argentina.

“However, steers in Australia are now tracking close to a 50 per cent premium to those in Brazil.’’

This is an issue as world trade opens up.