US outlook improving but El Niño by July?

cattle

Prices for young cattle fell again this week, indicating that restocker confidence is not strong in the market, furthermore the Bureau of Meteorology (BOM) is predicting that we may have an El Niño by June this year. Meanwhile overseas, strengthening US export fundamentals may provide some support and it is looking increasingly likely the Brazilian BSE scare won’t have a major impact on our markets at this point.

The Eastern Young Cattle Indicator (EYCI) plunged 22¢ (3%) this week, dipping to 700¢/kg cwt at the close.

Overall, supply of young cattle remains strong, at 15K head, while total east coast yarding jumped 23% week on week to 50K head. Yardings continue to track strongly for this time of year, at 5% above 2022 levels. High supply continues to have the impact of putting downward pressure on market prices.

Slaughter jumped by 23% week on week to 110K head; this is 22% above the level seen this time last year, indicating that capacity is continuing to improve, as processors are taking advantage of the lower prices for cattle on offer at present. That said, demand from this channel is not strong enough to hold prices up or encourage restocker demand.

The usual key selling centres of Dalby, Roma store, Dubbo, and Wagga contributed 56% of the index. Dalby steers sold at 742¢/kg cwt, while Dubbo traded lower, at 721¢/kg cwt. Further south, Wagga Wagga steers also moved at an average price of 742¢/kg cwt.

Market reports indicated that some export buyers were absent at Roma. In Dalby, vendors from further afield including far western QLD, SA, and NSW were trying their luck in the marketplace.  In Wagga, demand for well-bred quality light steers was reported as weak, and lower quality cattle struggled, resulting in wide price spreads. Competition for heavy steers was solid from processors and lot feeders.  

The BOM has predicted potential exposure to a moderate El Niño weather system by July.  It must be noted that BOM’s climate models are quite aggressive, and pessimistic compared to other international ENSO forecasts.

There are no new updates regarding the mad cow (BSE) case that was discovered last week in Brazil, with the official Brazilian Ministry of Agriculture and livestock website silent on the matter. The general consensus among trade commentators, including Steiner consulting is that if the case remains confirmed as “atypical” the trade suspension with China will not drag on for three months as it did in 2021, due to the prompt reporting of this case.  

Steiner’s analysis is that the impact of a short four-week suspension of beef trade between China and Brazil will be negligible upon global beef markets, as it is assumed import orders post a ban lift would be larger to account for lack of volume in March.  Australia and the US may win a few extra beef orders in the coming weeks, but it’s unlikely to add materially to demand unless Chinese consumers become warier of Brazilian products due to food safety concerns.

US frozen cow 90CL prices saw another promising increase last week, gaining US2.5¢c (1%) to close at 238.5¢US/lb, or +15¢/kg (2%) to 766¢/kg in AUD terms.  Steiner reports that US cow slaughter continues to fall back, with early February kill rates running at 13% below that seen a year ago in Feb 2022.

In the last month, the US domestic beef benchmark, the “choice cutout” has lifted US20¢ (7%) to 287¢/lb. In contrast, the monthly gain in imported Australian 90CL prices has been just 4%. This suggests that Australian lean beef represents good relative value to US buyers currently, meaning that it has scope for further appreciation going forward.

The week ahead….

The Brazilian mad cow (BSE) scare is looking less likely to have a major direct impact on our markets, but we shouldn’t take our eye off the situation.

Closer to home, most producers will be more carefully assessing their grass budgets for the coming year and monitoring precipitation given the looming threat of El Niño on the horizon. Keep in mind that an El Niño in Australia may mean a strong rebuild in the US as their conditions improve, which will provide support to prices.

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Data sources: MLA, Argus, Steiner, BOM, Mecardo

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