Strengthening signs in US lean beef market

Firstly in the space of just two weeks, the price of indicator Aust/NZ 90CL blended cow beef has spiked by US10c/lb FOB US East Coast.

Late last year the speculation was all about whether the price would reach the heady US300c mark but it has blown through that to currently sit at US308c/lb.

Steiner says, "It used to be that the range for 90CL beef during 2005-2010 was around US$120-170/cwt (or 120-170c/lb) with $200 hit only briefly. Between 2010 and 2020 the range became wider but the average price moved to around $220 and market traded as high as $300 a few times. Now it appears that the new average has moved to around $270 and we would not be surprised if in the next two to three years, as domestic cow supplies decline, we get to the $350 level and possibly above that."

There are a number of factors that have a bearing on this optimistic outlook but largely it comes down to supply of the primary source of commodity lean beef, culled cows.

Certainly as we learned in the past two years there are complicating factors such as the impact of COVID-19 on processing and distribution as well as demand shifts at foodservice and retail level and of course increase in global demand for the product with the economic rise of China.

But at the heart of the matter is availability of imported product from Oceania and the amount of product being produced domestically in the US.

The cattle herds of both countries experience cycles in growth and reduction and that really comes down to weather. Debilitating drought drives liquidation and back-to-back good seasons bring on the rebuild.

In the Pacific it is the same recurring climate pattern, the El Nino-Southern Oscillation (ENSO), which has such a big impact at its western and eastern extremities only with opposite effect.

Steiner picks up on this theme.

In the 2010-2012 period when the last La Nina was active Australia experienced a three-year run of good seasons with commensurate herd rebuilding.

Two years into that phase lack of availability of slaughter cows saw beef exports to the US drop to a low 167,000 tonnes in 2011. At the same time large parts of the US were experiencing extreme drought plunging the herd there into sharp decline.

By early 2011, lean beef prices had risen from around US124c/lb to US208c/lb, a 68 per cent increase.

Two years into the current La Nina phase Australian beef exports to the US dropped even further to 145,000t and since mid-2020 US domestic and imported 90CL beef prices are up 42pc.

The obvious question that arises is why doesn't the increase in US domestic lean from their liquidation make up for the shortfall from Australia when the herd there is in rebuild?

In large part this is because the two products are not immediately interchangeable.

US end users often have a tight country-specific stipulation for imported frozen product for manufacturing reasons and the US processing sector is generally not geared toward frozen product.

Logically after a prolonged liquidation phase, herds are at a low point and the extent of the drop in inventory together with the withholding tendency in the rebuild years determines the supply picture.

Steiner notes that last year saw the highest culling ratio in the US since 2011.

It believes the beef cow inventory at January 1, 2022 will be 560,000 head down on the previous year and 1.1 million head down since 2019.

Accordingly, if the culling rate remains as high as in 2021, beef cow slaughter is expected to decline about 2pc. But if the culling rate subsides to something closer to the 20-year average, then cow slaughter in the US could be down as much as 13pc from 2021.

The upward pressure that would place on domestic lean price could also be expected to provide good support for imported lean-beef prices.

COVID-19 return-to-work exemptions at Naracoorte three weeks ago came with an unintended but seemingly inevitable consequence once disparaging accusations appeared on Twitter and mega-retailer Woolworths temporarily withdrew from supply arrangements at the site.

A very senior company contact said at the time they were concerned to see this issue spill out in the media.

General Administration of Customs of the People's Republic of China (GACC) has for some time displayed a heightened but irrational sensitivity to the possibility of COVID transmission by way of food and packaging and any suggestion of an issue would encourage them to delist.

But the misleading nature of accusations already in the public domain put the company in a position where it needed to explain its case even if it put the Naracoorte licence at risk.

Teys subsequently posted detailed website responses on January 15 and 17.

The issue was defused, the plant returned to work in full compliance with all state and federal food safety, occupational health and safety, and market access regulations and Woolworths quickly resumed their supply arrangements but the suspension process went ahead regardless, resulting in the formal announcement over the weekend.

In a brief statement Teys said it would work closely with Australian export market regulatory bodies to achieve reinstatement of the facility's access to China.

LABOUR issues remain problematic to the point that none of the multi-site majors have yet got their plants back to where they would like to be and this is showing up in buying attendance at saleyards and grid pricing.

One southern Queensland operator quoted briefly at 790/730c/kg for 4-tooth ox and cow but is back to not quoting again because of the number of cattle still being rolled back.

Another currently has 785c/kg for ox, 720 for cow and 805 for 100-day grain-fed with same rates in central Qld.