WITH the rain-affected kills of March behind us and additional capacity coming on line in April, the stage was set for processors to finally move into top gear in May.
Latest MLA figures show that is exactly what is happening with last week’s eastern-states kill reaching 147,712, up 7000 on the short kill of the week before making it the highest weekly kill so far this year.
That also makes three weeks in a row of 140,000 plus kills and this is reflecting in increased beef exports as the latest progressive figures from DAWR (Department of Agriculture and Water Resources) show.
To May 17, a little over 61,000 tonnes have been shipped so far for the month compared to 88,000t for the whole month of April.
If that rate is maintained, May should see around 110,000t exported for the month, a figure not seen since December 2015.
Standout customer in this surging trade is Japan with nearly 18,000t for the month thus far.
If they continue to take Australian product at the same rate their import volume will exceed 30,000t for the month, an amount last seen in May 2013.
Considering the intense competition from the US and their determination to displace Australia as number one supplier to Japan, this is a very significant achievement.
The ace-up-the-sleeve for Australia in its intense rivalry with the US in the Japanese beef market has been JAEPA (Japan-Australia Economic Partnership Agreement) in its provision of considerable progressive tariff reduction.
While significant in its own right, this advantage was further enhanced last year when countries without an economic partnership agreement with Japan (including the US) suffered a tariff snapback on frozen beef from 38.5pc to 50pc under Japan’s trade safeguard provisions.
That tariff imposition lasted from August 2017 to March 31 this year.
No doubt a weaker dollar has recently helped Australia’s competitiveness but to hold its own against relatively cheap American product has been a standout.
A contributing factor is that overall beef consumption in Japan is growing and as MLA International Business Manager for Japan Andrew Cox pointed out in his address at the Beef 2018 global market forum, total imports are also growing.
From the perspective of the supply side of the market, high feedlot inventories in Australia have been coincidently convenient but the increasing cost of that production with steeply rising grain prices is another matter.
Feeders including producers hard pressed by drought would now be looking for higher lock-in forward rates and processors would also be doing the sums on the extent to which they are prepared to capture forward supply beyond their needs for brand/customer requirements.
If the economics don’t stack up it would be reasonable to expect some drop off in numbers on feed in the second quarter from the step up that occurred in the first quarter. In turn that would have supply consequences in the third quarter, the traditional lean period on the processing calendar.
According to the latest ALFA/MLA feedlot survey released last week, the number of cattle on feed as at March 31 was 1.03 million head.
This was an increase of 5pc or 52,000 head on the December 2017 quarter and 12pc above the five-year average. It is also only the fourth time on record that 1 million has been surpassed.
Not to be overshadowed by developments in the Japanese market, other major and lesser volume markets in Asia are also trading strongly.
Korea jumped out of the blocks this year with a progressive 14pc increase in Australian beef imports for the four months ended April.
That rising trend looks set to continue in May with 8200t already shipped by the 17th compared to 11,500t for the whole of April.
Unfortunately if that rate of gain continues it might bump Australia into snapback tariff provisions later in the year for the fourth year in a row.
Already at a ‘fixed’ 5.3pc tariff disadvantage to the US due to timing differences in respective free trade agreements, Australia also faces a very restrictive safeguard volume in the Korean market relative to the US.
The US safeguard volume in 2018 is 306,000t while Australia’s is just 167,327t.
China is also taking increased volumes of Australian beef at present with their four-month progressive tally to April at 34pc above 2017 levels.
Similarly the lower-volume market of Indonesia is also showing a 34pc gain.
In contrast, the US market is showing only a very modest gain so far this year. DAWR figures suggest this month may be the first time this year that monthly tonnage exceeds 20,000 but that would still only represent an overall gain of less than 3pc year-to-date.
Supply tighter, market turning
WITH Beef Week done and dusted it was back to reality this week and the realisation for many of just how much the season has worsened in the past few weeks.
One major processor I spoke to early in the week commented that it is not only Australia’s south-east that is destocking everything they can that is killable but it is also happening on the Barkly and country to the south-west of Mt Isa right down into the Channels.
Noticeably, a significant tightening in supply has occurred in the southern part of the state.
The couple of weeks out front that existed after Easter has gone and June is expected to be tough with expected holdback of stock for tax reasons.
Grids have not moved yet from 475c/kg for indicator 4-tooth ox and 415 for heavy cow but it looks very much as though the bottom of the market has been reached and the next move will be upwards.
Southern processors are already paying the equivalent of 550-560c/kg DW on the ground in southern markets and it is expected they will soon gravitate to Queensland in search of cattle.