Latest cattle market update

Cattle markets steadied the past month after some patchy rain slowed turnoff in some areas. However, the seasonal bias remains dry, particulary across the south with most areas in desperate need of an early autumn break.

Cyclone Alfred disrupted the Queensland processing sector for 10 days and has left a backlog of cattle with northern works booked six weeks ahead.

Due to dryness and disruptions to processing in Queensland from Cyclone Albert, despite excellent beef export returns, local cattle prices are under pressure from supply. With several short processing weeks coming up around Easter, producers will be looking at rain forecast to aid them in holding back supplies until after Easter when works are at full capacity.

Queensland processors working weekends amid China delay in US beef plant renewal

Some family owned Queensland works killed over last weekend to help clear the backlog of cattle which gives an indication of the strong processing margins currently on offer. Recently China, has moved to impose tariffs on US beef and has not renewed export licenses for US beef plants which has raised the prospect of increased demand for Australian beef into China.

China has renewed registrations for hundred of US pork and poultry plants but as yet registrations for US beef plants (about half the number of US beef plants currently exporting to China) that expired on March 16 have not been renewed. Registrations for the other US beef export plants fall due in the next few months.

Australian beef exporters have said that they would welcome increased Chinese business but will ensure current custmers needs are met before supplying Chinese orders having been adversley affected by the cancelling of export licenses by China several years ago. Australian exporters have worked hard to diversify their beef export customer base as a way of managing risk.

Beef and cattle prices are at an interesting juncture. Prices may come under pressure in the leadup to Easter if it remains dry as producers will be forced to turnoff stock at a time of reduced processor capacity. After Easter, when works resume at full capacity there will be a shortage of slaughter ready cattle across the south which will force southern processors north to source stock. This will see a general rise in prices as northern processors will have to compete harder to secure supplies. 

Beef export prospects appear strong with opportunities presenting from reduced US production and changes in trade flows from trade issues between the US and its major trading partners. The big proviso is the impact of any trade restrictions on Australian beef imports imposed by the US (see below). The uncertainty around tariffs and trade restrictions is putting traders on the backfoot. US importers are nervous and there is no clear evidence yet of growing buyer demand out of China. Any significant tariffs on Australian beef will be shared down the supply chain which would be a negative for Australian beef export returns and Australian cattle prices. 

US tariffs to be shared with supply chain

There is talk of a tariff on US agricultural imports being introduced on 2 April. Countries are being placed in tiers and levied based on the country’s current trade relationship with the US. 

Australia is looking to be levied between 12 to 18 pc (lowest tiered country rate of 2 to 8 pc plus our GST). While demand for some of the items imported from Australia to the US is relatively inelastic, the talk is that US importers will want to share the cost of the tariffs with the supply chain which would be a negative for Australian beef export returns and Australian cattle prices. 

Heavy steers look well-supported

Notwithstanding tariff uncertainty, heavy steer values look well supported by several factors. Firstly, China has placed additional tariffs on US beef and restrictions on access for US beef plants which should see some demand shift to Australia. Secondly, the poor season across the south has meant reduced supply of heavy weight export cattle which will see increased processor competition and thirdly, US feedlot production looks to be finally starting to ease which will further reduce competition from the US.

The recent US ban on Mexican cattle due to screworm is starting to show up in reduced cattle placements into US feedlots. The USDA cattle on feed (COF) report this Friday is likely to show a dip in cattle placements of 14pc in February to drag COF numbers back 2pc under year ago levels. This might be a precursor to the impact of the proposed Mexican and Canadian tariffs where feeder steer imports of around 2 million head annually may be affected.

Battle to maintain access to US and avoid further reciprocal tariffs

Under the US-Australia Free Trade Agreement (FTA), Australia does not impose any tariffs on the US, but the Trump administration is analysing the cost to American exporters of non-tariff barriers.

The National Cattlemen’s Beef Association (NCBA) went hard against the Australian beef industry, in a public document published online, complaining that the US-Australia FTA is by far the most lop-sided and unfair trade deal and urging volume limits on Australian beef imports and suggesting the US reciprocate if Australia does not accept US beef imports (they have been banned due to biosecurity risks). This document will be submitted to the US Commerce Department and the US Trade Representative as part of its review of perceived unfair trade practices.

Timings remains uncertain, but 1 April is the due date for submissions to the US Commerce Department and the US Trade Representative. After that, there will likely be a period of reviewing potential responses, followed by a public comment period. We do not anticipate reciprocal tariffs in the near term—it may take months and likely extensive bilateral negotiations before any measures are implemented.

Cow markets overwhelmed by supply for now

The cow story remains the same. Driven by strong processing margins, southern processors bid up cow values in February as supplies tightened across southern areas. However, the sharp rise in prices seem to have done their job of attracting a lift in offerings. Saleyard values, particularly for cows, had surged in front of direct to work quotations to be in the mid $6’s/kg dw (low $3/kg lw) and higher on isolated sales versus $5.80 to $6.20/kg dw at the works. As more cattle came forward and processors extended their booking schedules, prices pulled back.

We expect this to be a recurring pattern with any slowdown in supplies seeing increased processing competition and higher prices. Across southern markets (southern NSW, VIC and SA), producers are in the last throws of offloading any saleable stock with many carting water and available feed supplies very low. With pregnancy testing well advanced, there will be a few empty cows to come but otherwise, cow numbers should soon start to lighten off across the south.

We expect southern processors to start heading north, earlier than usual, to source cows to fill slaughter schedules. This will provide competition for northern processors and lead to a general appreciation in cow values, probably after Easter, depending on the extent of the autumn break. 

What will be the impact of Mexican and Canadian tariffs?

Another aspect of Trump tariff rampage is the impact of the now twice delayed tariffs on Canada and Mexico.

There is significant cross border trade with nearly 2 million feeder cattle moving into the US from Canada and Mexico and over 700,000 t of beef. While the US sent nearly 270,000 t and 350,000 head of cattle the other way. These tariffs will cause significant dislocation to cross border trade and will alter trade flows, increasing the price of cattle and beef in the US and decreasing it in Canada and Mexico. Australia could see the impact of increased Canadian and Mexican beef exports in global markets where these countries have access.

Australian imported lean manufacturing beef prices into the US reached a new record high on Friday, hitting $A10.85/kg and continuing the rally in manufacturing beef prices that started around the middle of last year, as US cow slaughter rates declined. Buying this week appears to have taken on a more cautious tone as the trade tries to understand the impact of proposed US tariffs on Australian beef.

Southern feeder prices make up ground

Northern and southern feeder steer markets detached from each other during Spring as the southern wet season failed, leading to an early and sustained turnoff of southern cattle. At the same time, northern feeder steer markets started to lift as Queensland producers held onto cattle and northern feedlots were caught short heading into year’s end.

As we move into autumn it appears that these markets may be about to flip with a shortage of southern feeder cattle seeing premiums emerge across the south. 

Given disruptions to the supply chain from Cyclone Albert, Queensland feedlots have been left with excess cattle. It is hard to get a quote from Queensland feedlots for feeder steers with one agent saying he is getting calls from producers he hasn’t heard from in 4 years. Most of Queensland is ok season wise, but with numbers having been built up over the past 3-4 years and weaning coming up again soon, there is a need to keep cattle moving through the pipeline. A good rain would buy producers a bit of time and smooth out supply.

In another sign of the difference in feeder availability between the north and south, the Angus premium is surging widening out to over 40 to 50c/kg lw over flatbacks. This premium virtually disappeared late last year as markets were flooded with southern feeder cattle and supplies of flatbacks were tight across the north.

Restocker prices in the hands of the season

Restocker cattle values will be dictated by the season. A strong early break across the south will see southern producers become more active as they look to rebuild herds that have been downsized due to successive poor seasons. Conversely, a continuation of dry conditions throughout Autumn will see saleyards increasingly dominated by cattle of store condition which will drag on these cattle values.

Restocker values have tried to rally but any sustained rally has been thwarted by the tightness of the season which has been difficult to only fair. Northern NSW is indicative of the challenges of the season. Despite some patchy rain on the northern tablelands and slopes last week, solid numbers continue to come forward. Mixed quality offerings of cattle are selling to price trends determined by quality with firm prices on heavy weights but softer on the lighter stock. 

One agent drove from Brewarrina (NSW) to Hamilton (VIC) and reported dry conditions all the way through with some ground cover in NSW and a few green patches in isolated areas that have had storms, but the closer you get Victoria the further the season falls away with conditions once you hit Victoria ‘terrible’.