May 9, 2012

 

 

Australia's cattle prices are expected to fall, with their decline limited by the impact of dwindling US beef output on the world market.

 

The retreat in Australian cattle prices, from a record high of AUD4.27 (US$4.31) a kilogramme in December, a price 30% above the average so far this century - looks set to continue into 2014, as the impact of ranch restocking in 2010 and 2011 feeds through, Commonwealth Bank of Australia said.

 

"The local rebuilding effort has been successful," CBA analyst Luke Mathews said, noting that cattle numbers had recovered from 26.6 million head at the start of last year to more than 28.8 million at the beginning of 2012, the highest in more than 30 years.

 

This increase will foster a 4% rebound in slaughter rates this year, lifting Australian beef output to an all-time high of 2,200 tonnes.

 

"Record beef production is likely to take heat out of the processed beef market, which in turn is likely to reduce processor competition in the sale yard," Mr Mathews said.

 

"Furthermore, farmers are likely to be less aggressive in the restocker market this year," given the re-expansion that has already occurred.

 

Indeed, the end of the La Nina weather conditions - which have fostered rains in much of Australia, particularly the east, supporting excellent pasture condition means "opportunistic producer herd rebuilding will be less aggressive in 2012".

 

Cattle prices are poised to decline "over the coming 12-24 months because of increased local supplies, reduced restocker activity and expectations for a continued firm Australian dollar", Mr Mathews said.

 

However, the fall will be limited by firm values in the US, the top beef producer, where farmers look set this year to undertake the restocking Australian farmers have already done.

 

US cattle slaughter is to fall by more than 1.8 million head to 33.3 million head this year, the smallest in more than 50 years, so squeezing domestic beef supplies.

 

"Declining beef and veal production, combined with forecast herd rebuilding in the coming few seasons, is likely to support above-average US beef prices in the coming few years."

 

The output drop will limit US exports too, meaning prices in other producing nations "should be supported above historical averages".