Bond markets have been supported by some market-friendly data and while Fed speakers were again mixed, it was the more dovish remarks that captured attention.
In Focus: Beef – May 2018
2018 has been exceptionally dry across much of Australia, with knock-on downside to restocker interest and young cattle prices.
- We are now one-third of the way through the year and while parts of Queensland have been lucky with weather, large parts of the country have missed out. The EYCI dropped below 500c/kg last month for the fist time in three years, signalling that the herd rebuilding underway since 2015 is very much on hold.
- Against this challenging domestic picture, global markets provide mixed signals. Export prices to US and Japan have been reasonably resilient, although with the USDA forecasting higher production this year, it is likely that there will be some pressure in the US and perhaps more broadly across our key export markets. Meanwhile, the live export market to Indonesia has been relatively weak, dropping below $3/kg amid Indian buffalo competition.
- On the other hand, there are some good reasons for optimism. Firstly, many producers are in a strong position following the 2015-17 boom, reflected in strong Farm Management Deposit inflows. Beef producers now have over $800m in FMDs. Secondly, a good break should bring confidence back reasonably quickly, although it is getting a little late in the season. Thirdly, the AUD has fallen more than 5 US cents since the end of January, boosting local returns. And finally, the boom was driven by one-off factors, notably US demand in 2014 and 2015 and a restocker boom in 2016. Our forecasts suggest that prices will remain above their pre-boom levels. On balance, we see the EYCI falling to 475c/kg this year, but back to the 500c range in 2019.
For further details, please see the attached report: