Is Australian and NZ beef out-competing domestic beef in the US market?


Guest Author, BEEF Central (Australia) 

May 13, 2019


Independent meat industry analyst Simon Quilty looks at the performance of Australian and NZ imported beef in the US market, and comes to some interesting conclusions over future prospects for price premiums for lean grinding beef   



IN MY previous discussion paper providing a ‘report card’ on Australia’s global beef export performance, I had Australia’s score in the US market at 8/10 (click here to view previous report).


I would give New Zealand’s beef exports into the US the same score, and I answered the question of whether Australian and NZ beef was out-competing domestic beef within the US market with a resounding ‘Yes.’


I promised to elaborate on this in more detail in a later paper, and explain why I think this premium is likely to remain in place for the balance of this year.


In fact I believe it will reach a record average premium over US domestic 90CL manufacturing beef of close to US10-12c/lb. Australia’s (and New Zealand’s) cow 90’s normally trade at a US3.5c/lb discount to domestic US product, based on the last 16 years’ average.


The only period I believe due to seasonal factors Australia is likely to trade at a discount this year will be for 4-5 weeks during late May and early June. The rest of this year is likely to be at a premium over domestic US supplies, with the potential that in October and November this premium could reach an unprecedented level of US30c/lb.


In today’s US market, imported 90 CL meat is trading at a US2.5c/lb premium to domestic 90’s and in the previous four weeks this had ballooned out to US12.5c/lb. This was highly unusual, but it has occurred before – in the past 16 years, it’s happened five times, to be exact, but only once in 2011 to this level of premium.


The simple reason is the lack of imported meat being shipped to the US and in particular by New Zealand, with their beef shipments down by 25pc year-to-date, due to China buying NZ lean meat away from the US. The US domestic hamburger market has relied heavily in the past on the availability of lean meat from both Australia and NZ over many years, but since the rise in demand out of China, lean beef exports from NZ have been diverted into China in increasing quantities, which has seen a critical shortage of imported lean meat in the US. As a result, an imported price premium has evolved.


The following graph highlights the other significant years of imported 90 CL beef premiums and when they occurred. In short, the tighter the NZ supply, the higher the premium, and this year is on track to be the tightest supply year ever in recent history.


Why is imported 90 CL meat trading at a premium?


Why is imported 90 CL meat trading at a premium over domestic fresh 90s?


In 2010 and 2011 the premiums averaged US7c/lb and US8cc/lb respectively, and with this year’s NZ shipments to the US expected to be even lower, I would not be surprised to see imported 90 CL premiums average US10-12c/lb above US domestic 90’s.


What is a more sobering thought is that during the fourth quarter of this year, we could see imported move to a US30c/lb or greater premium as meat gets even tighter due to Chinese New Year buying.


What does this mean going forward?


What does this mean going forward for imported and domestic 90’s, should these trends continue?


The challenge is trying to put a value on where domestic 90s might be at for the balance of the year. The following are forecasts done by Kevin Bost (Procurement Strategies Inc, out of Elgin, Illinois) on US domestic cow, steer and heifer weekly slaughterings. In both instances he has Q3 and Q4 US domestic slaughterings on par with last year.


The interesting scenario to me is that given the 6-7pc larger weekly US cow kills compared to last year seen in the last six weeks, yet domestic 90 CL prices are almost identical year-on-year. But with more cow meat volume, it points, to me, to strong US demand for grinding meat. So should the forecast of cow supplies fall in line with last year’s supply, but demand remains robust, it could be argued that domestic 90 CL pricing will be firmer than last year for the balance of 2019.


Using 2017 and 2018 as two potential scenarios of domestic 90 CL price movements, and the belief that NZ exports remain at 25pc less than last year, the following are potential ‘what-ifs’ on imported 90 CL pricing.


Most importers would be hoping the 2018 price scenario is the likely outcome, and most exporters in Australia and NZ would be hoping 2017 is the likely scenarios. Either way I believe there are two definites in the market – firstly, imported NZ beef supply is likely to be extremely tight in Q3 and Q4 this year and secondly, there will be strong China demand for 2020 Chinese New Year.


Both factors reinforce my belief that there could be a US10-12c/lb or greater premium on imported 90 CL this year over US domestic 90 CL.


Has this price trend changed forever? ...


Conclusion ...


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