Probing US demand for beef

Probing US demand for beef


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CHANGING MARKET: The US is traditionally Australia's second biggest export market but numbers have slipped over the past three years.

CHANGING MARKET: The US is traditionally Australia's second biggest export market but numbers have slipped over the past three years.

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The US is Australia's second biggest export market, but over the course of the last three years we have seen our beef exports to the US slip.

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The US is Australia's second biggest export market, but over the course of the last three years we have seen our beef exports to the US slip. Is this the start of things to come? Does the US still need our beef?

In May of this year, I was fortunate to join a group of Rabobank clients as they travelled to the mid-west of the US meeting with fellow clients and industry players in the beef industry. Apart from getting to experience the vast scale of operations over there - visiting feedlots of 83,000 head - we also learnt some very valuable insights into the US beef production system. A system that lives on corn but also has access to a futures trading market, allowing them to hedge price risk.

An example of this, was how they had just managed their way through a wet and cold winter. Normally in these circumstances carcase weights would fall, but despite this they maintained their cattle weights.

The weakness in basis levels (cash prices for fed cattle lower than the futures price), encouraged cattle feeders to delay fed cattle sales (thereby adding more weight to fed cattle) compared to recent years when the basis was strong. So while seasonal influences would have suggested lower production, the futures market supported higher production.

More recently, unseasonably wet weather in May delayed the corn planting in some areas including Colorado and Kansas. As a result, we saw corn and feed prices lift - CBOT corn prices jumped from USD 3.80/bushel (AUD 214/t) at the start of May to USD 4.50/bushel (AUD 250/t) at the end of May.

With higher feed costs, feeders will look to replace inventory with heavier cattle that require fewer days on feed. Feeder cattle prices have hovered in the low USD 130's/CWT (AUD 4.10/kg) for much of June but are expected to move up towards a late summer peak - nearer to USD 140/CWT (AUD 4.40/kg). However, with lower demand for lighter cattle it will limit the upside to feeder cattle prices.

The positive with the US market at the moment is that their economy is performing well and the US consumer continues to eat beef. Per capita consumption has risen and beef retail prices continue to hold despite increased production.

After we saw stronger volumes of Australian (and New Zealand) lean trimmings head towards Asia last year, the US stepped back in this year. Lean trimmings prices to the US have risen from AUD 6.74/kg in January to AUD 7.62/kg in early July. While not records, these prices are back close to the high levels seen in 2014 and 2015 - helped by a weaker Australian dollar. So yes, the US still does need our beef and will continue to play a very important role in Australia's beef system.

-Angus Gidley-Baird is a senior analyst for Rabobank.

The story Probing US demand for beef first appeared on Queensland Country Life.

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