October 22, 2007

Drought, high grain prices pull down Australian cattle prices on a 10-month low

Cattle prices in Australia, the world's second-largest beef exporter, dropped to their lowest in more than 10 months due to drought which forced ranchers to sell animals and higher grain prices crimp demand.

There were 10 percent more animals offered for auction this week at sale yards measured by Meat & Livestock Australia's National Livestock Reporting Service, the Sydney-based trade group said today in an e-mailed report.

Australia's worst recorded drought has sunk cattle prices down by 20 percent in the past three months with dwindling feed supplies forcing ranchers to reduce herds. Wheat's rise to a record last month is also deterring feedlots from fattening cattle with grain.

Tobin Gorey, commodity strategist with the Commonwealth Bank of Australia, the "economics of cattle is very poor with current grain prices¡­that virtually cripples the industry."

Benchmark prices fell 0.25 cent, to A$2.7375 (US$2.44) a kilogramme on the Eastern Young Cattle Indicator, which measures auction prices of livestock sold in the nation's east, the lowest since December 11, 2006. Prices fell 2.8 percent last week, the seventh straight weekly decline.

Cattle numbers in Australian feedlots fell by 23 percent in the September quarter because of record grain prices, the nation's Lot Feeders Association said on October 15.

Gains in the Australian dollar, up 18 percent in the past year, are also pulling prices down, according to Peter Weeks, chief economist with Meat & Livestock Australia. He said prices will probably fall further, he said.

Widespread rain can turn the whole situation around, according to Weeks.