Insights June 2020
Insights June 2020
- Australian cattle prices are expected to remain supported at high levels during winter after a strong rally in May as a favourable rainfall outlook will continue to drive tight supply and encourage restocker buyers.
- Demand for Australian beef in export markets is expected to strengthen, however tight domestic supplies will restrict export volumes.
- Severe disruptions to beef processing in the United States could continue to create some short-term opportunities for Australian beef exports to the United States as well as Japan and South Korea.
The Australian cattle market is well placed heading into winter with prices high after rallying during May and good pasture conditions in most regions after a wet autumn. The eastern young cattle indicator is currently only 2.7 per cent below the record high achieved in March. Continued tight supply in Australia, strong restocker demand and improving consumer demand will combine to maintain prices at high levels through winter despite economic uncertainty.
Tight domestic supply will help keep Australian cattle prices supported at current high levels as favourable seasonal conditions allow producers to retain stock and begin herd rebuilding. Average weekly eastern states cattle slaughter in May was 14.7 per cent lower than last year and could trend over 20 per cent below last year’s levels in the second half of the year. The low supply of cattle will continue to be met by strong demand from restockers in eastern states, fuelled by confidence from a wet autumn and a high chance of a wet winter. This will provide a strong level of underlying support to prices.
Support for prices will also come from recovering demand in domestic and export markets as COVID-19 restrictions ease, however tight supply will restrict export volumes from Australia for the remainder of 2020. Domestic beef demand will experience some improvement as restrictions on foodservice channels ease. Demand from China should remain strong, despite suspended access to the Chinese market for four Australian abattoirs which account for an estimated 35 per cent of Australian beef exports to China. A 15-20 million tonne protein deficit in China resulting from African Swine Fever will continue to fuel demand for beef imports. Also impacting Australian beef exports will be the flow-on effects of COVID-19 related beef processing disruptions in the United States which saw weekly slaughter rates fall over 40 per cent below 2019 levels. US beef production is forecast to decline by 5.1 per cent, and exports by 4.2 per cent in 2020 due to reduced processing capacity. This has increased opportunities for Australian lean beef imports and seen a rally in the 90CL import price. Reduced export volumes from the United States could also support Australian beef exports to Japan and South Korea where demand has remained firm so far in 2020. Opportunities in some major export markets and improvements in demand will offer support to Australian cattle prices, even as Australian export volumes become restricted by tightening production.
Sources: Meat & Livestock Australia
*MLA Cattle Market Price Indicators (CV19) have been added to previously reported cattle indicators from 25/3/20.