Big beef price hike tipped for producers who can hang on

Slaughtering of female cattle has been historically high for months which will reduce numbers of restocker cattle down the track.

Australian beef has been selling well in key overseas markets, notably the new import powerhouse, China, which has been hit by a disastrous outbreak of African swine flu which will further increase its appetite for meat imports.

MLA said the drought and recent floods in north west Queensland (with losses of between 500,000 to 700,000 head) would trigger the largest drop in the national herds for decades.

The national herd was forecast to decline 7.7pc to 25.2 million head in the year to June, 2019.

MLA's market intelligence manager, Scott Tolmie, said forecast adult slaughter for 2019 has been revised slightly higher but was still expected to be below 2018 levels at 7.7 million head.

"The revision is largely driven by harsher-than-expected seasonal conditions during the first quarter and subsequent accelerated slaughter," Mr Tolmie said.

"For the year-to-February, adult cattle slaughter was 1.28 million head, 11pc higher than the same period in 2018 and the highest opening kill since 2015.

"The Queensland floods will have reduced the pool of available slaughter and export cattle," he said.

"However, this is overshadowed by the current elevated drought-induced turnoff with the poor conditions set to persist across many parts of the country and the latest Bureau of Meteorology forecast showing no strong indication of significant immediate relief.

"With a reduced pool of available slaughter cattle, any widespread autumn and winter falls will be pivotal to how slaughter tracks in the second half of the year."

Mr Tolmie said the female portion of total adult cattle slaughter had remained elevated this year, reaching 54pc in February, its highest monthly level since June 2003.

"On a 12-month rolling basis, the percentage of females in adult slaughter stands at 52pc - well above the 47pc mark typically indicating a herd in contraction," Mr Tolmie said.

"Feedlots have remained near capacity but lower entry weights and the high cost of feed has impacted feeding margins.

"Elevated female slaughter and lighter sale weights, due to poor pasture conditions, have led to lower carcase weights so far this year.

"This trend in carcase weights is forecast to continue, which combined with slaughter figures, will underpin a three per cent decline in production this year, to an estimated 2.2 million tonnes carcase weight (cwt).

"Beef exports for 2019 have been revised marginally higher since the January projections, to 1.09 million tonnes shipped weight - a three per cent contraction year-on-year but still above any level recorded prior to 2013.

"At a time of drought-induced elevated cattle slaughter, global demand for Australian beef has been strong, supported by a low Australian dollar and fresh tariff reductions in the new year.

"In the first quarter, Australia exported almost 265,000 tonnes of beef, up 11pc year-on-year and underpinned by increased grassfed beef production. Export growth has been led by China and the United States, with first quarter shipments up 67pc and 16pc year-on-year, respectively."

Mr Tolmie said looking ahead at prices, strong demand fundamentals and limited supply should see continued support and stability for finished cattle prices.

"Prices for store condition cattle are expected to remain under pressure until seasonal conditions allow restockers to re-enter the market with confidence and producers to hold onto more cattle," Mr Tolmie said.

"While a return to more average seasonal conditions could see herd rebuilding recommence later in the year, the prolonged dry conditions will restrain the pace of any rebuild.

"Furthermore, the run of poor seasons since 2012 may have left farm finances drained. The longer the herd remains in liquidation, the sharper the expected price correction when it re-enters rebuild territory.

"Even if there is a consistent string of reasonable seasons, it is expected to take a number of years before the national herd is back to its longer-term average of 28 million head."