Strong South American beef exports, and dry weather triggering higher slaughter rate, will trigger falling cattle prices in Australia next year, National Australia Bank said.
Cattle prices in Australia soared to all-time highs is August, as producers held back animals from slaughter in order to rebuild their herds, after several years of kill-offs.
But the bank warned that if dry weather returns to Australia, a shortage of pasture and feed will squeeze margins, which will encourage sales and reduce cattle prices.
“The Australian cattle industry has enjoyed a stellar two year run of rising prices, and more recently, very good rains across many cattle producing regions,” NAB said.
But the bank warned that “high prices this year have been driven almost exclusively by domestic restocker interest rather than global fundamentals”.
“Should restocker interest slow in response to dryer conditions, it is likely that prices will come under further pressure.”
Uncompetitive Australian exports
Prices are already sharply down, with the Eastern Young Cattle indicator at 633 Australian cents a kilogramme, down from a peak of about 726 Australian cents reached in mid-August this year.
“This movement is in line with a seasonal increase in supply, although expectations of a dry summer and concerns about Australian competitiveness in key export markets is also a factor in the decline,” the bank said.
And prices were forecast to fall further in 2017, hitting 500 Australian cents a kilogramme in the September to November period, down over 30% from their peak.
South American exports
And fundamental support from overseas demand is being away, with US cattle supplies under pressure after better pasture and “cheap and plentiful” corn prompted a successful herd rebuild since 2011, with those supplies now reaching the market.
“Further, there is likely to be much more competition in the US imported beef market in the coming years as South American producers become more competitive,” the bank said.
Demand from Japan, now the top destination for Australian beef, will remain “very reliable,” the bank said, despite a moribund population and stagnant beef consumption rates.
Chinese demand ebbs
But NAB warned that Australian exports into China are “less certain,” despite a deal for access negotiated in 2013.
The bank warned that Australian product faced a “lack of price competitiveness, combined with strong competition from Uruguay and more recently Brazil”.
Between 2014 and 2016, Australian market share in China has fallen from 45% to just 19%, the bank said.
(Source – http://www.agrimoney.com/news/dry-summer-threatens-australian-cattle-prices–10262.html)