Export prices dampen upside but still plenty

Cattle in the distant on a farm

It’s been some time since the 7 day precipitation forecast has looked so promising, and we are even starting to see some impact at the yards. As we wait to see if the rains will indeed arrive, we’ll take a look at movements in export markets, as it might have stripped some of the potential upside out of the market.

It depends which forecast you look at, but over the coming week, the Bureau of Meteorology (BOM) models are forecasting 25-50mm of rain for a third of NSW, with the northeast corner likely to get over 50mm.  The eastern quarter of Queensland is also likely to get some reasonable rain.

While they won’t be drought-breaking, the rains will be a start, and enough to see young cattle supply tighten. 

In early December, when export beef prices were in the grip of a panic buying rally, the potential upside for cattle when supply tightened looked huge. 

The slide in the 90CL Frozen Cow Export Beef price to the US, which started in December, has continued into January.  The first full Steiner Consulting Group report for the year blamed falling export beef values on Australian exporters wanting to diversify markets as some are having to renegotiate pricing with China.

Figure 1 shows the 90CL in our terms has fallen back to September levels of 730¢/kg swt.  The highs of 968¢ seem a long way away now.  Chinese demand is still strong, and Chinese New Year is approaching, so support should be found at some stage.  With prices now back at pre-panic levels, it might be soon.

We can see in figure 1 there is still a large gap between young cattle prices and the 90CL.  Finished cattle prices have opened at similar levels to the 2019 close, but they also have room for upside. 

Much now depends on supply.  Figure 2 shows weekly east coast slaughter has opened up at similar levels to last year, but if the rain does arrive, cattle slaughter should track lower than last year.

What does it mean?

If cattle slaughter settles around the five year average, finished cattle prices should rally back to the highs seen late last year.  There is more upside for young cattle, but the demand side of the equation might take longer to materialize fully and see prices rally to their full extent. 

Of course, follow up rain will be required to see the EYCI move back above 600¢, but it will happen quickly if the rain does fall, then continue.

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Key Points

  • Good rain is forecast for large parts of NSW, Queensland and Victoria in the coming week.
  • Potential upside has weakened with falling export beef prices over the break.
  • Cattle prices will still rise with widespread rain, with young cattle the most to gain.

Click on graph to expand

Click on graph to expand

Data sources: MLA

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