Low cattle supply across the country is a major driving force in the current tight conditions in the global beef cattle market.
According to the Rabobank Q2 Beef Quarterly report, the beef market is so tight, with growing demand, that localised disruptions, including conditions in Australia, are having a far greater impact on trade and prices than typically seen.
“However, with the tight global supply situation – underpinned by Chinese demand which is expected to remain firm – we believe the global market has seen a fundamental step up,” said Angus Gidley-Baird, senior animal proteins analyst.
Australia’s local market has seen the lowest beef cattle herd recorded in 30 years, thanks to years of drought and large scale livestock liquidation.
Young cattle prices increased by nearly 30% in February of 2020, and have again increased by 20% in February of this year.
Improved seasonal conditions seen in 2020 largely drove these price increases, with producers looking to restock and generate value out of increased pasture production creating intense buyer competition.
“While lower volumes and higher prices make competing in the global market more difficult, the tight market situation is working in Australia’s favour and creating less resistance to our high prices,” said Gidley-Baird.
Gidley-Baird anticipates that cattle prices will begin to ease as cattle number inevitably increase, winding down high levels of producer demand.
“However, as the supply chain overcomes the disruption here and consumers adjust their price expectations, we believe the market will adjust and a new baseline will be established,” added Gidley-Baird.
The balance of buyers in the weaner cattle market is already returning to normal levels, reflecting producer demand easing, feeders taking more of a share in the market and more cattle heading to feedlots.
“Compared with last year, when producers were the largest buyers in the ECYI (Eastern Young Cattle Indicator) weaner category for many months, the first three months of 2021 has seen them occupy on average 39% of the market, with (lot) feeders at 50%,” said Gidley-Baird.
Though producers are still paying premiums of around 6% above the market average and are as such still supporting cattle prices.
Moreover, cattle slaughter figure are still low, with east coast numbers in April down 30% compared to last year and 11% below the five-year average.
Beef exports are also down 22% on 2020 levels and 11% down on the five year average.
“The share of total Australian beef exports going to China dropped from 24% in 2019 to 17% year to date and the share going to the US declined from 20% to 15% in the same period. Meanwhile, volumes to Japan and South Korea lifted slightly for the first four months of 2021,” concluded Gidley-Baird.
