Insights February 2021
Insights February 2021
- Australian cattle prices are expected to remain well supported at high levels, having already increased by 10 per cent from the end of December.
- Recent rainfall in eastern Australia and a favourable rainfall outlook is expected to keep supply tight and fuel continued strength in restocker demand.
- The outlook for export demand is positive as consumer demand recovers in key export markets, however the disconnect between Australian cattle prices and the global market is a concern for the sustainability of high Australian prices.
Tight supply and continued strong restocker demand in eastern Australia are expected to keep cattle prices supported at exceptionally high levels, at least for the next couple of months. The Eastern Young Cattle Indicator (EYCI) opened the new year by jumping 27c/kg to a new record high of 831c/kg carcass weight and the red-hot start continued as the indicator continued to rise at a rapid pace, peaking at 888.25c/kg in late January and is currently 50 per cent higher than the same time last year.
Tight supply will remain a strong factor supporting cattle prices in the next month, following a sluggish start to the new year. Average weekly slaughter in eastern states in January was 35 per cent below the 10-year average for January, while yardings were 41 per cent below the January average. Good rainfall in December and January across eastern Australia will likely see producers continue to retain stock to utilise available grass which will keep supply very tight.
Competition among restocker buyers for the reduced supply of cattle at saleyards is expected to keep demand firm. Recent rainfall and the outlook for wetter conditions to continue through to autumn are likely to continue to fuel optimism as producers seek to expand herds.
On the international front, the demand outlook is positive on the back of improving consumer demand as key export markets recover from the impacts of COVID-19 outbreaks and vaccines become more widely distributed. Despite tight supply, the volume of beef exports in December was higher year-on-year to Japan and South Korea, indicating strong demand in these markets. December volumes were lower year-on-year to China (-56 per cent) and the United States (-47 per cent). Demand from the US could improve in the next few months as importers secure supplies ahead of spring. The US 90CL lean beef import price increased by 6.9 per cent in January, indicating a strengthening of demand amidst tight supply from Australia and New Zealand. Despite the recent increase, the margin between the US import price and the EYCI has widened from an average premium of six per cent held by the US import price to a current 25 per cent discount. This significant disconnect between Australian cattle prices and the global market indicates that current prices are unlikely to be sustainable in the longer-term.
Source: Meat & Livestock Australia