Given the recent volatility, price forecasts are a dangerous game. The heavy liquidation of dairy animals is due to the decline in global milk prices and will not take long to conclude. New Zealand’s total cattle inventory is only 10 million head, with a 50/50 mix of beef and dairy animals. That is simply not sustainable and will decline in 2016. ![]() In 2015, the consumption of Australian beef in the US has almost been equal to the consumption of Australian beef in Australia. Australia simply will not have the beef supply to sustain 2015 shipment levels into 2016. There has been a 10 percent reduction in Australian cattle numbers in just the past two years, shrinking the herd from the largest cattle inventory in 30 years to the smallest inventory in 20 years. Besides the price delta and currency influence, Australia has been in a severe drought since late 2013.Ĭattle slaughter in Australia has been the largest in 35 years. Of total beef imports, 53 percent of the supply has come from Australia and New Zealand. Import/export balance and currency impactsįor 2015 through August, US beef imports are up 53 percent while beef exports are down 10 percent. The penalty of discounts, seasonal considerations as winter weather sets in and more heifers in the feeding mix during the coming year will all serve a function in levelling or reducing average carcass weights in the coming year, and this will ultimately reduce overall beef tonnage. Since late summer 2015, packers have initiated heavy discounts on both excess fat levels and overall carcass weight, which has served as a penalty box for cattle feeders. Each of these factors have contributed to heavier carcass weights. Short feeder cattle supplies and aggressive heifer retention have shifted the steer/heifer mix. As previously mentioned, high-priced cattle, moderate priced corn and high replacement costs have created economic conditions that encourage feeders to add weight to cattle and defer/reduce feeder cattle placements. Fed steer carcass weights recently peaked at 923 pounds, 17 pounds above the 2014 seasonal peak and 36 pounds above year ago levels. The current market issue is a tonnage problem not a numbers problem. This is both weather and market dependent. However, the flip side is that heifers should provide increased overall feeder cattle availability by spring to summer 2016 as female retention for herd rebuilding eases. The retention of heifers for cow herd rebuilding is aggressive and has further tightened the existing feeder supply. If feeder cattle supplies do not show up in placements by the end of the year, fed cattle supplies will remain tight through the first half of 2016, and this correction will have stabilised and reversed. With only three months remaining for the year and the summer grazing season coming to an end, it will soon be determined if the cattle are simply not available. Reduced total numbers of cattle and the retention of heifers for herd rebuilding have made available supplies of cattle difficult to obtain. ![]() Monthly feed yard placements have been below year-ago levels for nine of the previous twelve months, and supplies of cattle remain tight. Given the list of drivers that caused the market complications, a closer look at each point could give clues as to what could take place for the remainder of the year and the first half of 2016. All of this led to excess beef in the market at a time when the market had expected supplies to remain scarce as the cow herd rebuilds. This combined with unprecedented conditions of record-high fed cattle prices, relatively low feed grain prices and a horrible feeder/fat swap, encouraged producers to feed existing inventory longer in an attempt to lower break-even prices of cattle on feed and defer purchase of replacement cattle with an equal or worse break-even calculation. The key drivers of the current market break were record domestic prices that curbed short-term consumer demand and an incredibly strong US dollar that encouraged beef imports while discouraging US beef exports. While that fact does not make the short-term economics any easier, it does provide market participants the ability to largely correct the market from within, which will ultimately be a huge advantage. However, we argue that the current break was primarily driven by complications in the internal market. It is important to note that, in the past, all similar market declines were driven by an outside influence.
0 Comments
Leave a Reply. |
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |