We have been saying for a while that export beef markets will need to rise to sustain current cattle prices when supply improves. It might be short-lived, but there are signs of improvement in the US beef market, which has dragged export values higher last week, and there might be more to come.

Despite Covid-19 restrictions still causing some issues with processors throughout the US, Steiner are reporting that processor margins are very good, as we move towards ‘grilling season’.  Grilling season is basically spring and summer, when US beef consumers start up their BBQ, which, given the enormous market, means they consume more beef.

In the US, the United States Department of Agriculture (USDA) report the value of the beef cutout.  The cutout is basically how much the beef from a steer is worth.  The CME publish a rolling average of different quality steer cutouts, so it is a broad indication of beef prices in the US.

Last week beef cutout values rallied strongly.  Figure 1 shows the CME boxed beef index rallied to its second highest level on record last week.  Cutout values last week were 9% higher for the week, and up 18% for the month.  The previous peak, back in May 2020 was much higher, but that was due to Covid shutdowns and extreme tight beef supply.

Figure 1 shows that our export beef prices, as shown here by the 90CL Frozen Cow, generally follow the US beef cutout value.  This should come as no surprise, as part of the cutout is made up of manufacturing beef, and all beef prices tend to follow the same price trends.

Last year the rally in the US beef cutout saw the 90CL increase, but not to the same proportion.  This time the cutout rally might be more sustainable.  Steiner suggests that processing capacity doesn’t have far to move given the current Covid restrictions, so domestic beef supply will be hard to increase.

As such the strong US beef prices should flow through to 90CL imported prices in the US, especially given the tight supplies in Australia, and to a lesser extent New Zealand.  The 90CL export price has already risen to 9 month highs, but it could reach the levels shown by the red line on figure 2, if US beef prices maintain their strength.

What does it mean?

Figure 2 shows how strong the EYCI is compared to the 90CL, and even if the 90CL lifts to around 750¢, the EYCI will remain at a significant premium.  However, any improvement in international beef prices, which flows through to our export prices will be welcome for the Australian cattle industry, as it provides support for all sectors of the market, which flows through to cattle prices.

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Key Points

  • Tight US beef supply, and improving demand, has seen US beef prices rising in recent weeks.
  • Stronger beef prices in the US flows through to imported beef prices, and our export values.
  • If US prices can hold, there should be upside for export prices, and support for local cattle values.

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Data sources: MLA, Mecardo

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