Growth, inflation and labour market all easing
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.
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. The Eastern Young Cattle Indicator – a key benchmark for the industry – smashed records to reach 725 AUc/kg in August this year. The initial phase of this boom was caused squarely by US demand for imported beef in response to domestic US supply constraints following high corn prices and drought in 2011. However, these factors have since dissipated, with US drought conditions much more localised and corn cheap and plentiful.
With the US market no longer a driving factor, the current phase of the boom has been based on domestic restocker interest as producers look to rebuild herds following elevated slaughter rates in 2013 and 2014. While this has been supported by a wet winter and spring, as the weather dries out the risks to saleyard prices are considerable.This is further compounded by generally less favourable prices in some export markets, although we note that beef prices to Japan and live export prices to Indonesia have remained more favourable.
We have already seen some price contraction – the EYCI is now below 640 AUc/kg. But the bigger question is to what extent this decline presages a greater contraction in the new year. It has been our view for some time that the international beef outlook is now much weaker than in 2014 and 2015 and if eastern Australia sees a hot, dry summer (as per the Bureau of Meteorology’s latest forecasts) restocker interest could slow rapidly. Our forecasts point to the EYCI falling to 500 AUc/kg in the September quarter 2017.
Please see the attached for details
More from NAB:
© National Australia Bank Limited. ABN 12 004 044 937 AFSL and Australian Credit Licence 230686.