Predictions of higher slaughter rates and price pressure

Trump trade wars causing jitters in US after supply concerns.
Trump trade wars causing jitters in US after supply concerns. Mike Knott BUN180912RUR2

DRY weather is dragging livestock prices down, while overseas the US beef market has the jitters on supply concerns and the Trump trade wars.

The lack of rain this April bit into lamb prices this past week, with carcass prices slipping below 600c/kg as unusually big numbers for this time of year continue to be pushed on to the market.

The cattle sector is also struggling under the pressure of feed and water, with the Eastern Young Cattle Indicator average for vealers and yearlings being sold to restockers, feedlots and processors falling to a two-month low at 532c/kg carcass weight.

The further prices fall before the autumn break, the sharper the price rebound is likely to be, particularly for lamb, due to the extra numbers that have been processed ahead of winter.

The cattle market has more global influences because of the amount of beef that is produced and sold by other countries.

Concerns are mounting in the US of a potential glut of beef in coming months, which would coincide with our winter period and expectations of higher saleyard prices.

It follows reports of a lag in the number of cattle being sold out of US feedlots.

Respected US market analyst Len Steiner, of Steiner Consulting Group, has crunched the figures and predicts there will have to be much higher slaughter rates in the US by late-April and into June.

"Per our calculations, the supply of cattle that have been on feed (in US feedlots) for more than 120 days on April 1 was about 24 per cent higher than a year ago,” he said. "We expect to see fed cattle slaughter climb above 500,000 head a week in the second half of April, and slaughter could potentially reach 530,000 to 540,000 by June.”

To put it in context, the number of feedlot cattle processed in the US last week was estimated at about 485,000.

Concerns about the amount of beef in the pipeline have affected cattle futures pricing in the US.

Late last week US cattle futures for June fell by the maximum daily limit and contracts for June are now trending nearly 10 per cent lower than the same time last year.

Mr Steiner said end-users of beef in the US were reluctant to lock into deals amid concerns prices might fall, particularly if the bearish sentiment from the futures market proves accurate.

"Usually one expects imported and domestic grinding beef trade to be quite active in late-March and early April, but that has not been the case this year,” he said.

"US domestic users are quite apprehensive about the outlook for prices in May and June and are content to go hand-to-mouth.”

The potential problem lies in the possibility of some secondary meat cuts from feedlot cattle, such as knuckles and round steaks, falling below the price level of grinding beef from cows.

The Steiner Group went through a complicated formula of calculating the grinding value of some secondary meat cuts, taking into account factors such as fat content.

Using current prices in US terms, the following is the likely scenario they came up with.

"If fed-cattle futures are right and fed-cattle prices drop to the $100 carcass weight area, it would mean certain inside cuts would be worth $200,” Mr Steiner said.

"So one can see why a domestic user (of beef in the US) would be somewhat reluctant to bid for imported grinding beef at a potential cost of $215 to $220.”

Topics:  australia cattle prices len steiner livestock united states of america