THE US has been double jeopardy for the Australian beef market complex in recent times because of low prices for imported grinding beef on one hand and their export competitiveness in high-value global beef markets on the other.
But the latest signs from across the Pacific suggest there may be some changes starting to occur in the supply and demand factors of their market which should in turn be positive news for Australia.
In recent months the relative abundance of grinding-beef product has seen imported lean go from trading at a premium to US domestic lean to trading at a substantial discount.
Two weeks ago indicator 90CL blended cow from Australia/New Zealand was worth US212c/lb (FOB US East Coast) while domestic 90CL boneless was quoted at 232c/lb.
However in the space of one week, that 20c differential has shortened to just 14c.
According to US based analyst Steiner Consulting, a fundamental shift in supply is leading this turnaround.
Quoting USDA combined import figures from major suppliers Australia, New Zealand, Central America, Brazil and Uruguay, Steiner notes that the average inflow of more than 14,000t/week that prevailed through July/August is now down to 7600t/week.
Against this background of falling import volumes, traders and importers in the US now appear more inclined to resist low-bid offers from end users.
Major exporter New Zealand has also been noticed in the last couple of weeks for its stronger stance in asking prices due to the approaching seasonal low in their supply pattern.
Australia too may be about to enter a period of reduced supply after a three-month delay in the onset of its much anticipated Q3 seasonal downturn.
Some market observers are predicting October will be the July that didn’t happen.
As for demand, end users in the US until now may have felt comfortable sitting on their hands (as Steiner describes it) and not being too concerned about the limited positions they had adopted in regard to forward purchases.
The reason for this confidence appeared to be linked to the steady erosion in fed cattle prices and a downward trending cattle futures market which were in keeping with predictions of increased levels of domestic supply.
However, that dynamic now seems to have changed.
In mid-August the December 2017 fed cattle futures contract traded as low as US$106/cwt. Trading last week saw that jump to over US$117/cwt (hundredweight or 100 pounds).
In AUSc/kg carcase weight that is a move from around 525 to 580 or $200/head extra for a 360kg bullock.
Steiner argues that this development is changing the price risk perception among US end users and has thus contributed to the turnaround price movement in imported lean beef seen last week.
Whether we will see further strengthening in this development (and therefore benefit for Australian exporters) would seem to hinge to a large extent on Q4 slaughter volumes in the US.
On this topic opinion is very much divided at present.
USDA is predicting a 7pc increase on year-ago levels on the assumption that marketing rates will be similar to the year before and fed-cattle carcase weights this year will be heavier.
Other analysts do not expect such a big increase in slaughter in Q4 and also expect a sharp quarter-to-quarter decline in Q1 next year.
That could see the physical price of fed cattle track toward the futures price which at this point is trading at US$120/cwt for February 2018.
Such a turnaround in the cost of cattle to US processors could pull back some of the competitive price advantage they have enjoyed over Australia in recent times in high-value Asian markets.
Kill numbers defy gravity
EACH week when MLA puts out its slaughter report it includes a graph of the current year compared to the two previous years.
In profile, the 2016 and 2015 trend lines are similar in that they follow the same upward and downward direction almost in mirror image. The only difference is that they are at a different height on the page due to a difference of about 30,000 head per week in throughput.
From this graph it is evident that gravity usually kicks in around the beginning of Q3 with numbers falling until the spring upswing in Q4 and the run up to Christmas.
For the first six months of this year the 2017 trend line was much the same only a bit further down the page due once again to fewer numbers.
Then unexpectedly in June numbers kicked taking the 2017 trend line above 2016 where it has remained since.
This counter-cyclical flush is particularly evident in Queensland where the past 18 weeks have seen an average weekly kill of just over 70,000 head.
Week-to-week variation has also been minimal with male cattle averaging 44,600 and females at 25,400.
High feedlot numbers and dry weather have been the driving influences but it would still seem likely that a drop off will occur.
One major processor I spoke to earlier in the week said supply from across much of the state is now becoming a week-by-week affair.
The exception is those areas of north Queensland which received beneficial rain earlier on and the effect of that is showing through in the condition of both bullocks and breeders.
However that does not automatically equate to solid meatworks bookings as the live export market is active and highly competitive in price.
For the time being over-the-hook prices in southern Queensland remain unchanged at around 490c/kg for indicator four-tooth ox and 430c for heavy cow.
In the feeder job two massive hikes in the price of grain in the last month have had a marked influence on the market.
Good types of yearling steers around the 400kg mark which were attracting 310-315c/kg in August are now around the 275-280c mark and holding at that only because there are grass finishers prepared to take the risk.