Local beef exporters are struggling to gain a full benefit from the surging United States beef mince market.
US imported lean grinding beef prices have improved so far in 2017 according to Meat and Livestock Australia.
“The prices have risen on the back of reduced slaughter in Australia and New Zealand and tight spot supplies on the US market,” MLA said.
But, local processors are only getting part of the increasing US grinding beef price benefits due to our current Australian dollar value against the US dollar.
It’s estimated our Australian processors are losing up to six per cent in potential US ground beef profits.
“The imported 90 chemical lean beef indicator averaged US206c/lb CIF as of last week according to Steiner Consulting Group, up 14 per cent in US currency terms from where it opened in January, but up just 8pc when converted to Australian dollars,” MLA said.
“Short term currency movements of late have not been favourable.”
This week our Australian dollar is trading around 77 US cents.
With processors continuing to face high Australian cattle prices, the currency conversion losses on grinding beef exports to the US may further squeeze Australian processor’s profit margins.
“While the $A has increased about 6pc against the greenback since the start of the year, as have the currencies of other major beef or buffalo meat exporters,” MLA said.
“The Brazilian Real has increased 5pc, while the Indian Rupee has gained 1pc.”
However, both the aforementioned global suppliers work-off a much cheaper production cost base.
“Shifts in market access to China and Saudi Arabia in the case of Brazil, and Indonesia in the case of Indian buffalo are having a much more significant impact than currency movements,” MLA said.
But, it’s not all bad news with the current Australian dollar price level against the US also providing some benefits.
According to MLA, while Australian cattle prices have been at record high levels over the past year the $A has played a somewhat mitigating role in this cost being passed onto the global consumer.
“In $US terms, so far in February, saleyard heavy steers have averaged US426c/kilograms carcase weight (ctw) across Australia; if the $A was still at US109c, as was the case in April 2011, the same indicator would have averaged US601c/kg cwt,” MLA said.
“Such currency movements are, in-part, sheltering the growing competition of US supplies entering Japan and South Korea.
“On the flip side, an $A tracking above parity put a ceiling on cattle prices during the last local herd rebuild period in 2011 and 2012.”
Looking ahead, two of the major banks have the $A forecast at a lower level by the end of 2017. Those forecasts are around 70 to 74 US cents for December this year.
“Any downward movement would be welcome news, but the $A resisted most forecasts to move lower throughout 2016,” MLA said.
“Given the global political landscape has shifted significantly over the past year, there is potential for greater volatility in currency markets throughout 2017, and swings could be large and in either direction.”
