Insights September 2020
Insights September 2020
- Australian cattle prices are expected to steadily push further into record territory during spring, driven by strong restocker demand and tight domestic supply.
- The strength of domestic market factors is expected to help the market largely resist headwinds from reduced competitiveness in export markets from an appreciating Australian dollar and competition from other suppliers in key export markets.
- Beef demand remains subdued by COVID-19 restrictions on foodservice outlets with an uncertain outlook that hinges on restrictions easing or tightening in key markets.
The eastern young cattle indicator (EYCI) is expected to steadily climb towards 800c/kg during spring after reaching a new record high of 788c/kg in late August and is currently 56 per cent higher year-on-year. A steady decline in weekly slaughter rates and strengthened demand from restockers in response to improved rainfall and a favourable rainfall outlook drove the steady climb in the EYCI in August and both factors are expected to continue to support higher prices through spring.
A low cattle herd and an increased focus on herd rebuilding contributed to further tightening of supply in August. The average weekly eastern states cattle slaughter in August was 10.6 per cent lower than July and 27.8 per cent lower than August 2019. Tight supply is expected to continue to be a key trait of Australian cattle markets. Cattle slaughter is expected to remain 27 per cent lower year-on-year for the remainder of 2020. Improved rainfall in August and a greater than 80 per cent chance of above median rainfall in eastern Australia is expected to produce an abundance on pasture and continue driving strong competition among restockers for a reduced supply of young cattle.
While domestic factors are expected to remain supportive of high cattle prices, growth will be slowed by headwinds in global markets. Chinese demand for Australian beef has weakened with export volumes in August 55 per cent lower year-on-year. Chinese beef imports have increased year-on-year with significant growth in imports from South American origins. Robust demand from the United States for Australian beef could also weaken as the summer grilling season comes to an end and local production increases. In addition to weaker demand and increased competition, the appreciation of the Australian dollar is expected to reduce the competitiveness of Australian beef.
These headwinds have weighed on heavy steer prices and prevented this indicator showing the same growth as the EYCI. The peak for the EYCI may depend on how well the national heavy steer indicator holds up to global headwinds and ensuring the current EYCI premium of 15 per cent over heavy steers does not open up much further.
Source: Meat & Livestock Australia
*EYCI and WYCI data between 26/3/20 and 2/6/20 is unavailable due to MLA suspending reporting on most price indicators during this period.