WITH Australia's beef exports to the United States set to reach their quota limits in Q4, Rabobank is forecasting a short-term softening in cattle prices.
The Rabobank Beef Quarterly Q3 2015 report released this week says global economic conditions — such as the appreciation of the US dollar and the depreciation of the Chinese yuan and Brazil's real — are having an impact on beef trade.
A strong US dollar has led to a reduction in US exports and support for US imports, while a weakening Chinese economy and devaluation of the yuan are curbing beef prices in China, and the devaluation of the real is expected to support Brazilian exports in the coming months.
“With little change expected in major beef-trading economies in the coming quarter, other than a possibility of the US FOMC (Federal Open Market Committee) raising interest rates, a strong US currency is expected to continue to affect global beef trade," said Angus Gidley-Baird, senior animal protein analyst at Rabobank.
New Zealand and Australian exports to the US reaching quota limits (probably around November), combined with the availability of supply in the US, will see some short-term softening in the Australian and New Zealand markets.
The strong demand and high prices for lean ground beef coupled with dry conditions in Australia, and to a lesser extent in New Zealand, have enabled both countries to send record shipments of beef to the US.
Both Australia and New Zealand will reach their quota caps of 418,000 tonnes and 213,402 tonnes, respectively, before the end of the year.
Rabobank says once the quota is reached, a 21 per cent to 26pc discretionary tariff can be applied.
"Australia and New Zealand are now confronted with the question of whether they should continue to ship at high volumes and pay the tariff, look for alternative markets or slow down production," the report says.
"Given the tariff rates and the difference between domestic and imported prices in the US, it is not expected that the US buyer will pay the tariff.
"There are opportunities to send product to alternative markets such as China, Japan and Korea. However, demand is not expected to be strong enough for them to match prices to the US, particularly to fill a short-term order.
"US cold storage stocks of beef in August were 24pc higher than the same time in 2014, suggesting there may be enough lean beef to avoid the price jump seen with a shortage of product in late 2014.
"Together with the seasonal increase in US cow cull that occurs over the fall, the US may be able to overcome any short-term slowdown in imports associated with the quota restrictions.
"In Rabobank’s view, Australia and New Zealand processors will slow down processing a little, reducing supply, and perhaps pushing some shipments into 2016.
"This will have a dampening effect on local prices. However, this effect is only expected to be short-term, before the underlying fundamentals and an expected slowdown in Australian production play out into 2016."
Trade developments stall
Rabobank reports there has been little progress in trade developments in the quarter.
Australia is still awaiting parliamentary processes to enact the China-Australia Free Trade Agreement (ChAFTA); Brazil is still progressing towards a trade protocol with the US; and the Trans Pacific Partnership (TTP) remains in negotiation.
Russia has extended its ban on agricultural products from the EU, the US, Canada, Norway and Australia by another year.
US fed cattle prices are expected to see Q4 price strength but current prices may limit the upside, according to Rabobank.
It forecasts that Brazilian cattle prices will remain firm, with an expected improvement in exports.
Chinese retail beef prices are expected to be supported by increased demand into the peak consumption period.
