EXPORTS DROP: Just 72,607 tonnes sw of beef were dispatched to overseas markets in October - the lowest level in five years.

Exports hit a low point

FIGURES released by the Department of Agriculture and Water Resources show monthly beef exports have dipped to their lowest in five years.

Released last week the figures showed just 72,607 tonnes sw of beef were dispatched to overseas markets in October, a figure not seen since April 2012 (Januaries excluded).

By contrast peak tonnage over the same period was 123,000 recorded in March 2015 at the height of drought turnoff. 

This takes the progressive calendar year total to 841,000t compared to 1,077,000t same period 2015 which calculates to a drop of 21.9pc.

At an average unit price of around AU$7/kg, the difference of 236,000t represents a $1.65 billion downturn in export earnings so trade balance and economic multiplier effects are significant. But for the time being at least, it should not get any worse.

As predicted, slaughterings have taken a turn for the better as a consequence of a wet and mild winter.

Instead of losing condition on dry, frosted pasture, cattle have gained weight which should bring some into contention for slaughter in the remaining weeks of this year rather than first or second quarter 2017.

This in combination with what is left of the oats turnoff should put a reasonable number of cattle in front of processors for November at least and possibly into December. Slaughter figures provided by MLA tell the story.

In the last week of October the national kill (eastern states) rose to 132,000, a significant increase on the 100-110,000 head kills of late September/early October and the highest figure seen since July.

Last week’s kill maintained the trend with a respectable 129,064 head tally. National slaughter figures are a reliable guide to export beef tonnage so it is reasonable to expect exports to return to the same sort of volume that prevailed when the kill was last at this level.

For the months of July and August when total beef exports were 80,000t each month, the average weekly kill over that period was 123,000 head.

An industry contact with wide first-hand observation of Queensland and New South Wales pastoral conditions and stock numbers told me that he felt the current kill numbers represented the top end of what is out there. He did not believe there was any more upside to be had barring a major heatwave and that a reasonable expectation would be for kills to average back towards the 120,000 head mark.

If that analysis holds true we should see exports for the remaining months of this year up around 80,000t which should just nudge total exports for the year over the 1 million tonne mark. That will equate to around 280,000t less than 2015 with the US market representing the greater part of this downturn.

As a consequence, Japan has now moved ahead of the US as Australia’s largest volume market with a cumulative tonnage to end of October of 214,000 compared to 208,000 for the US.

JUST how hard it has been lately for Australian exporters to get US importers to pay something commensurate with the high cost of beef produced in Australia at present is reflected in the latest trade figures. For the month of October, DAWR reported a mere 11,710t going to the US.

That sort of figure is normally only associated with the month of January when most export processors go into recess for a couple of weeks and is in stark contrast to the 30-40,000t monthly volumes that were common throughout 2014-15.

But while sales desks have been relentlessly looking elsewhere for better bids, there just might be some brighter signs starting to appear across the Pacific.

In the second week of October the CIF East Coast price of imported 90CL blended cow was US184-186c/lb.

Latest report from Steiner has this product at US198-200c/lb and rising. Steiner puts this strengthening trend down to tightness in supply in the US domestic market for lean grinding beef against a background of overabundance of fat trimmings.

With imports already at a considerable price premium to domestic product the reluctance on the part of US importers to raise the bar any further is understandable. But it seems the supply dynamics offer little alternative.

Cow slaughter in the US, while increasing, will not be sufficient to make a difference just yet.

New Zealand and Uruguay are not expected to step up supply until Q1 next year and the volume of frozen grinding beef from Mexico looks set to remain at a minimal level.

Also, while some shipments have occurred to confirm the opening of the US market to Brazilian product, volume remains constrained. We just might see the US having to outbid other global importers to acquire the lean beef it needs.

As well as that may be for the lean-beef sector, strong headwinds remain for Australian exporters into at the higher-quality end of the US market. Current price for US fed steers in the physical market last week was US104c/lb.

In AU$ terms that works out to around 530-540c/kg dw, about the same price Australian producers are receiving for grassfed ox.

Adding in the advantage of lower processing costs in the US and the cost of landing Australian product halfway across the world, it becomes obvious that Australian exporters are up against it.

And of course that extends to markets such as Japan where the US is Australia’s biggest competitor.

Considering also that at US98.22c/lb the June 2017 futures contract for fed steers represents even further deterioration in the US market, it becomes a little clearer just what is meant by ‘headwinds’.

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