Feedlots underpin US surge

Cattle on feed underpin US production surge


Markets
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A significant lift in grainfed cattle numbers in the US is likely to flow through to increased competition for Australian exports.

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United States beef production looks set to pass 12.3 million tonnes in 2018, as numbers of cattle on feed continue to exceed market forecasts.

While MLA’s role in export markets is to grow demand for Australian red meat, another important aspect of our work is monitoring production and consumption in those markets and the implications for Australian producers.

The latest figures from the United States Department of Agriculture are important for Australia because a significant lift in grainfed cattle numbers in the US is likely to flow through to increased competition in Australia’s key export destinations, particularly in Asia.

USDA cattle on feed results show a larger than expected number of feedlot placements in May, bringing the total supply of cattle on feed at June 1 to 11.55 million head, 4.1 per cent higher than year ago levels.

It’s also the highest June 1 inventory since the USDA report began in 1996 and accounts for the 18th straight month of year-on-year increases.

US feedlots placed 2.1 million cattle on feed in May, 0.2pc higher year-on-year – a vastly different figure to industry estimates of a decline of between 4-5pc.

Deteriorating drought conditions – which continue to enhance the prospect of a US herd liquidation – have driven more light cattle into feedlots. Larger feeder cattle imports from both Canada and Mexico have also supported the increase, with imports of Canadian feeder cattle in May close to 300pc higher compared to last year.

The figures further confirm MLA’s observations that the global beef market is in a unique production phase with four major global beef producing countries – the US, Brazil, India and Australia – all entering a period of consistent growth.

US exports are forecast to increase 5pc this year, but market sentiment suggests this could be at the conservative end.

Price impacts

High inventories of cattle on feed would suggest cattle prices are unlikely to see any moves higher, certainly from a supply perspective. Just how US demand tracks through the summer months and its traditional ‘grilling season’ will be critical.

With the prospect of lower US cattle prices – evidenced with August live cattle futures displaying a 5pc discount – Australian cattle prices could follow suit as the correlation between the two markets settles closer to longer-term averages.

Historically, US cattle prices have carried about a 20pc premium to the Australian equivalent. For the calendar year-to-date the US choice fed steer has averaged a 29pc premium when compared to the Australian heavy steer, however when looking at the month of June in isolation the premium sits at 21pc.

Therefore, applying the same 5pc discount to the Australian heavy steer, currently averaging 204.76USc/kg live weight (lwt) or 279AUc/kg lwt the aforementioned indicator would return an average price of 194.52 USc/kg lwt or 265AUc/kg lwt in August.

How the season plays out until then will be a pivotal factor and any decent rainfall will see Australian cattle prices trending higher.

  • Rob Williams is MLA’s International Business Manager – North America.

The story Feedlots underpin US surge first appeared on North Queensland Register.

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