US economy supporting our cattle prices

How the US economy is supporting our cattle prices


Farm Online News
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Strong US prices and a strong US dollar are seeing our beef competitive in high-value markets.

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While producers battle drought in Australia and the herd is likely to slip into decline once again, in the US, beef production continues to ramp up. The strong prices of recent times have seen growth in the calf crop and very robust cattle on feed inventory.

The latest US cattle on feed report continues to point towards heavy supplies of beef coming out of North America in the coming months. The September report pegged the inventory of cattle on feed at 11.1 million head. This was the fourth month in a row where cattle on feed had been at a record, it was 5.5 per cent higher than this time last year.

In Australia, we get excited when cattle on feed are over 1 million head.  In the US, there were 650,000 more cattle on feed than this time last year. This puts our production into perspective and gives us a good reason as to why we need to watch US markets for ideas about where our market might be headed.

The good news out of the US is that despite the heavy supplies of cattle and beef, demand appears to be holding strong. The ‘booming’ US economy and strong demand in export markets are seeing the extra beef being soaked up at higher prices. It is the middle and high-value cuts which are in demand, while lower value cuts are cheaper than last year, as consumers with more money buy better quality beef.

The small rise in live cattle futures in the US, when converted to Aussie dollars has been around 10pc. This impacts Australian markets over the long term, with the QLD 100 day grain-fed indicator price close to a 14 month high and 10pc above recent lows.

The small rise in live cattle futures in the US, when converted to Aussie dollars has been around 10pc. This impacts Australian markets over the long term, with the QLD 100 day grain-fed indicator price close to a 14 month high and 10pc above recent lows.

The shift in demand is showing up somewhat in our markets, with the 90CL Frozen Beef export price similar to last year, while heavy slaughter cattle prices are stronger than last year.

Live cattle futures have held steady in recent months, albeit at levels lower than this time last year, as processors have no trouble sourcing supply. Cheap grain (relative to Australia’s current market) has seen feeder cattle futures on the rise, so feedlotters must still be confident of turning a profit.

What does it mean?:

At the moment, strong US prices and a strong US dollar are seeing our beef competitive in high-value markets. While the short-term price relationship to the is weak, over the longer term strong cattle prices in the US are nothing but good for our values (Figure 1).

We also have some sort of buffer if the US economy slows down. During the global financial crisis demand for manufacturing beef, our biggest export to the US, spiked as US consumers downgraded their quality.

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