THE beef cattle market has defied plenty of modelling predictions by analysts lately and the United States market could help that trend continue throughout the next few years.
Rabobank senior protein analyst Angus Gidley-Baird changed tack at the Alice Springs Show last week and presented a "feel good" story.
The US market is not gaining a lot of attention, according to Mr Gidley-Baird, but in the next two to three years, it could have considerable influence on the Australian market.
"The US are currently killing female cattle at a rate they have not done in more than 30 years," he said.
Last year, 3.6 million head of female beef cattle were killed in the US - a 9 per cent increase on the year before and the highest rate since 2011.
There were some key dates that Mr Gidley-Baird wanted producers to remember between 2010 and today.
"There is a pattern - in 2011 the biggest female cow kill led to a kill decline in 2014-15," he said.
"In terms of year-to-date, kill rates in the US are 15pc higher than last year.
"They slaughtered big numbers last year and are higher this year, which is somewhat cyclical."
But Mr Gidley-Baird noticed a difference this year.
"The US is experiencing its driest conditions seen in years - more than 60pc of cattle are in drought-affected areas," he said.
"Dry conditions are compounding what was already a cyclical reduction in female numbers and exaggerating that further."
Mr Gidley-Baird said the high slaughtering pattern in 2011 and 2012, was nothing compared with the present figures.
"They were pushing cattle out the door in a hurry because of the dry seasons and it was mostly in the mid-south," he said.
"The dry conditions are widespread now and it will impact breeding inventory and we are seeing that flow through at the moment."
It is expected that beef cow figures will drop below 30-million head in the US, after it had already reduced by 2.5pc in January this year, compared to the same time last year.
So, lower beef cow numbers will mean lower supply, Mr Gidley-Baird says and this will support Australian cattle prices.
But it is slightly different compared with past years and tipping in the Australian cattle market's favour.
When Australia was in the grips of a devastating drought a few years ago, it slaughtered about 9m head of cattle, with producers basically getting rid of what they could - fast.
At that time, Mr Gidley-Baird expected modelling to show a decline in Australian cattle prices but it did not happen.
Prices actually stabilised as a result of the US lean trimmings market that serves the burger trade, pulling prices up.
Mr Gidley-Baird said it could happen again, because of the favourable season in Australia and devastating drought in the US.
During a 12-month period of US supply shortage and peak prices in 2014-15, the US import price for lean trimmings jumped up by 50pc.
"The US hit the bottom of their barrel in 2014 and there was a rise in Australian lean trimming prices to meet the US burger production market," Mr Gidley-Baird said.
"If we expect a 50pc rise like we had before, even though beef prices are over inflated, prices could go higher."
Mr Gidley-Baird applied a conservative 25-30pc increase on the lean trimmings import price and revealed that Australian cattle prices could lift by 10pc.
"If we go to the same situation from 2011-14 in the US, historically high slaughter numbers, very low beef production and limited lean trimming production, means a pick up of of US import prices," he said.
"We expect US cattle slaughter to begin leveling to 2023 and start reaching a period where they start reaching low levels of stock.
"In 2023-24, we expect import prices to be under rising pressure and it might support Australian cattle prices."
The US is a major player in the global market, representing about 20pc of all beef consumed and about the same in terms of production of global beef.
It exports about 15pc the world's beef and imports about 14pc, so what happens in the US will generally have a big impact on what happens in the rest of the world, says Mr Gidley-Baird.
"The US consumer is very much in love with their beef burger - so they will do whatever they can do to keep having it - even if the prices go up," he said.
Unlike other markets, such as China, that historically switch in and out of cheaper proteins, the US market demand is relatively stable for Australian beef.
The US is one of Australia's top four markets, with something in the order of 15-20pc of exports heading to that country.
"Australia makes up about 20pc of US beef imports so we are an important market them and vise versa," Mr Gidley-Baird said.
He said in past couple of years, Australian beef imports had dropped to 8pc, through less beef cattle and females in the system.
"Australia needs to be aware of the changing international market and be mindful to not reduce beef exports into the US, by too much," he said.
"Brazil has gone from sending pretty much nothing to the US in past seasons, to reaching 20pc of US beef imports in the first four months of this year."
Mr Gidley-Baird said Australia would not benefit from the US looking elsewhere to fill its lean trimming demand.
Vanessa Binks
I am the Markets Editor and journalist at the Stock Journal. I am based at Nuriootpa in SA's lower north.
I am the Markets Editor and journalist at the Stock Journal. I am based at Nuriootpa in SA's lower north.
