Producers need to budget for softer prices

Softening prices in Australian beef markets is on the horizon, coming off the back of tightening US production in the last quarter of 2017.

Independent industry analyst Simon Quilty, MLX Pty Ltd, said the setback in Australian beef pricing was short term, with the fundamentals of strong global demand present in world markets.

Australia’s four key markets of Japan, Korea, US and China have gone quiet at the same time.

“The weakness in beef pricing is without doubt related to lower prices in key markets but this is not uncommon for this time of year – this is a seasonal factor,’’ Mr Quilty said.

“Normally we see global prices fall 4-6 per cent from June to September.

“Singularly the buying of beef for the Chinese New Year in mid February promotes beef prices from October onwards.

“After next year’s Northern Hemisphere summer, the demand driven market will get stronger.’’

Mr Quilty was a keynote speaker at a beef pricing forecast seminar hosted by Reiland Angus at Wagga on September 19.

Reiland co-principal Mark Lucas urged producers to budget for softening cattle prices from March to October, 2018, due to reduced international demand coinciding with the higher turn off from the expanded US cattle herd.

“A seasonal juncture will exaggerate the price, disrupting forecasts short term,’’ he said.

“The medium term will be affected by the finalization of the beef super cycle, the Chinese New Year and Northern Hemisphere purchasing.’’

Long term, from December/January 2019, the market appears to be in a strong position to correct and rebound to the high profit levels, according to Mr Quilty.

“The long term for beef looks very good due to this whole expansion of the global middle class, with 80 per cent of that occurring in South East Asia,’’ Mr Lucas said.

“Simon Quilty found these super cycles generally last 36 to 42 months – he demonstrated this to our audience in three ways and came to the same conclusion there will be a price softening from mid 2018 onwards.’’

Mr Lucas said the other strong take home message was good quality, high performance cattle able to supply a range of markets would always remain profitable.

“Specialised beef production targeting high marbling markets, such as Wagyu, are predicted to have the potential for over supply in late 2018,’’ he said.

“These producers will need to ensure a strong relationship with those buying these specialist cattle.’’

Simon Quilty believes the US and global meat markets are entering a two-year “super demand cycle’’ where traditional perceptions on price movements due to oversupply would be challenged.

Signals of a potential super demand period include increasing beef export volumes and revenue in Japan, Korea and the US.

“Even with excessive supply, prices will potentially go up dramatically,’’ Mr Quilty said.

“As we move into the last three months of the year, this is a key demand period for China leading up to Chinese New Year in February,’’ he said.

“China relies on four key export countries namely Brazil, India, US and Australia, and each play a crucial role in supplying Greater Mainland China.

“I estimate the 2017-2018 total yearly beef and Chinese New Year holiday imports will surpass any previous record years.’’

Mr Quilty pointed to another window of opportunity until December 2017 when Japan looks to Australia to meet its needs and take advantage of the 22.5 per cent tariff difference with US beef.

“The full benefits of Japan’s snapback and increased tariffs on our export competitors in this market has yet to materialize for Australia but these I believe are not far away,’’ he said.