As outlined a number of times on Mecardo, the war in Ukraine has caused world grain and oilseed markets to spike higher, with consumers scrambling to replace stocks they can no longer get out of these countries. If the war goes on for much longer, Ukraine wills struggle to sow spring crops, meaning that global production and supplies will take a hit in 2022.
Anyone who has been reading Mecardo for a while will know that rapid grain price rises will inevitably impact beef prices. With almost all the beef produced in the US being grainfed, as Adrian points out in his article today, a 15% increase in the cost of feed corn in the US will mean either beef prices rise, or feeder cattle markets tumble.
In the US it has been cattle markets which have fallen. nearby Feeder Cattle Futures have lost over 10% since the middle of February as lotfeeder margins shrink. (figure 1) They haven’t been helped by an uncertainty driven 3.5% slide in the Live Cattle Futures, which are based on finished grainfed cattle.
Normally, falling US cattle and therefore beef prices would be negative for Australian beef and cattle prices, with the US being one of our biggest customers in low value markets, and competitors in high value markets. However, figure 1 shows the moves in US cattle markets are barely a blip in the medium and long term.
The Global Financial Crisis (GFC) of 2006-2008 gives us somewhat of a template for what to expect in times of economic uncertainty and the subsequent decline in consumer spending. In the US the move from higher priced foodservice (steaks) to lower priced (burgers) actually increases demand for ground beef, of which lean cow beef is a major component. Our major beef exports to the US are lean cow beef.
Figure 2 shows the GFC spike in the 90CL beef export price, and the consistent climb we have seen during Covid. The recent high of 305 US¢/lb seen last week is a new record.
What does it mean?
Cattle markets were due to decline this year, and they might yet, but another round of export prices rises looks to be putting some solid support under the market for lean beef. This should flow through to other categories, to an extent, but some pressure might come on the top end grainfed beef.
This, along with rising grain prices will provide headwinds for young cattle prices, but a 90CL price above 900¢ should translate into an EYCI at that or higher, depending on how the season pans out.
- Rising grain prices and consumer uncertainty have seen US cattle prices fall.
- Our 90CL export beef prices to the US have rallied with increased demand.
- Strong export beef prices should negate some of the downward pressure due to hit cattle markets.
Click on figure to expand
Click on figure to expand
Data sources: MLA, ABS, DAWE