Insights February 2023

Commodity overview

• Increased domestic supply and competitive global markets will continue to place downward pressure on cattle prices.
• The longer-term outlook is more positive as a decline in US supply will provide greater export opportunities for expanding Australian supply.

Australian cattle prices will remain under some downward pressure for the next few months. This will be a continuation of the steady decline seen in recent weeks. The Eastern Young Cattle Indicator (EYCI) is currently 755c/kg. This is only 2.9 per cent lower than the start of 2023, suggesting the market is finding some stability following the rapid decline in late-2022. The recent range of the EYCI is around 30 per cent lower than when the price decline started in October 2022. This has brought the EYCI just below the five-year average.

Downward pressure on prices is expected to continue coming from increasing supply. The start of February saw week eastern states cattle slaughter rise to just over 107,000 head. This was the highest weekly slaughter since May 2021 and represents a 33 per cent rise since early October. Slaughter in all states except for South Australia and Western Australia is sitting higher year-on-year. This is a feat rarely seen in the last two years. Despite the increase in recent months, the latest weekly slaughter was still 5.8 per cent below the five-year average. Slaughter will continue to rise and close in on average levels.

Strong competition in international markets will also weigh on prices in the short-term. Increased slaughter helped drive export volumes 9.1 per cent higher in December. This made December the second largest export month for 2022. However, weaker global markets saw the average price of Australian beef exports fall 5.5 per cent. This was the lowest point since November 2021. Lower pricing for exports is also reflected in the US lean beef import price. This price has fallen 19 per cent since October and hit its lowest point since April 2021. This was due in part to both weaker US demand for imports and also appreciation in the Australian dollar.

There is light at the end of the tunnel as an inevitable slowdown in US production should ease competitive pressures later in the year. The US cattle herd has shrunk by almost six per cent since the start of 2019 and is at its lowest point since the 1960s. This will keep US production heavily constrained for the next few years. This will open greater export opportunities for Australian beef into the US. Reduced US exports will also allow Australia to recapture market share in Japan and South Korea.

Source: Meat & Livestock Australia