Australia’s beef producers will start to rebuild their herds, despite the threat of El Nino-induced dryness, thanks to a trend of rising cattle prices which looks set to continue, National Australia Bank said.
Australian cattle prices have, unusually, jumped over the past year despite dryness worries in some eastern areas – typically a negative sign for prices in cutting pasture condition and encouraging herd reduction.
The increase in prices – which as measured by the eastern young cattle indicator hit a record 489.5 Australian dollar cents per kilogramme last month – has been attributed largely to strong import demand from the US, where a recovery in southern pasture conditions from long-term drought is encouraging producers to rebuild herds rather than sell animals into the beef supply chain.
US demand for Australian beef, also encouraged by a drop in the value of the Australian dollar against its US counterpart, has reached such levels that a quota level might be breached this year for the first time.
At the current rate of beef exports to the US, Australia could by mid-August reach 85% of its 2015 quota allocation of 418,214 tonnes, Agriculture Minister Barnaby Joyce said earlier this week.
‘Producers to rebuild’
“There is renewed upward momentum in cattle prices… despite a poor finish to the northern wet season, with some parts of Queensland not seeing decent rain in three to four years,” National Australian Bank said.
The demand for beef is providing some support for dairy farmers too, facing poor milk prices, with prices of cull cows up 40% year on year in May to 368 Australian dollar cents a kilogramme, data from Dairy Australia on Friday showed.
Nonetheless, the high livestock prices will not for long prove able to draw more cattle for slaughter, with the cattle herd on course for what Meat and Livestock Australia (MLA) believes could be its lowest in some 20 years.
“We expect to see slaughter rates beginning to contract for beef and lamb as producers rebuild herds and flocks following elevated slaughter rates in 2014,” National Australia Bank said.
Last year saw a record turn-off for cattle in Australia, with 10.5m head either going for slaughter or into the live export market, according to MLA.
‘More price rises ahead’
The prospect of a squeeze on Australian cattle supplies ahead looks like stoking the rally in prices.
“Cattle prices have jumped significantly this year, and this trend is likely to continue while US demand persists at high levels,” National Australia Bank said.
The comments came despite acknowledgement that the onset of the El Nino weather pattern has “clouded the production outlook” for Australian agriculture.
“El Nino generally causes lower winter and spring rainfall in eastern Australia,” the bank said.
‘Dangerous to be short’
Indeed, with the area a major crop producer, the threat to cereals output, at a time of strong livestock demand, has caused dislocations in the area’s grain market.
Sydney-quoted wheat Thursday hit a three-month closing high of Aus$317.00 a tonne, up 15% over the past month, getting an extra boost from the rise in prices of sorghum, as Chinese importers snap up the feed grain.
“Large numbers of cattle on feed on the east coast are causing unprecedented demand for wheat for feed,” Queensland-based broker Pentag Nidera said.
“The large sorghum export programme has priced this commodity out of many feed rations and wheat and barley are now required to fill the local demand previously satisfied by sorghum.
“There will be a value where local prices cap out. However, this feels like a dangerous market to be carrying a short position.
(Source – http://www.agrimoney.com/news/rocketing-australian-cattle-prices-to-rise-further–8422.html)