‘Wall of US meat’ early next year will impact Australia’s cattle and meat fortunes, webinar told

 

Jon Condon, BEEF Central (AU)

May 21, 2020

 

A ‘wall of meat’ is building in the United States in coming months, which will inevitably impact pricing for Australian cattle and beef early next year, warns independent meat and livestock analyst Simon Quilty.

 

The problem stems from the enormous back-log of cattle that has built up in the US beef industry since the onset of COVID-19, which has forced meat packing plant closures and created an alarming buildup of ‘unprocessed’ cattle in the system.

 

Close to 1.5 million slaughter-ready US cattle had been pushed back because of COVID impacts, he said.

 

Presenting a webinar hosted by NSW Local Land Services last night, Mr Quilty said some recent weeks had seen US cattle slaughterings down 35-40pc on normal production at this time of year, and as a result, US cattle prices had fallen 20 percent or more. At the same time, US retail prices, in response to lower production, had skyrocketed, he said.

 

“The net effect of those US cattle being held back has changed the global beef market,” Mr Quilty said.

 

Low kills impact

 

Due to the record drought last year, Mr Quilty expects Australian slaughterings to go from 8.4 million head in 2019 to 6.6 million this year, and even lower next year to 6.57m.

 

“The fundamental difference between slaughterings this year and next year, however, is that the animals hardest to find this year will be male cattle, which will be in very short supply. Next year, male cattle numbers will start to rebuild, while females will be very hard to find,” he said.

 

“There is always this delayed effect after herd liquidation, drought and rebuild, where steers are in shortest supply to begin with, followed a year later by females. This drought is no exception.”

 

Kicking the can down the road

 

Mr Quilty used the term, ‘kicking the can down the road’ to describe the action of pushing back a problem, for whatever reason.

 

“That’s exactly what’s going on when we look at US beef production at the moment. Because of what we described earlier, US producers are struggling to get their cattle placed in US feedlots at the moment, and then getting those cattle killed.

 

“That 1.5 million head backlog continues to build, as the US processing industry continues to struggle – albeit that the situation has improved slightly this week, but cattle are still backing up.

 

US production sharply lower

 

The USDA last week came out with revised predictions for beef, suggesting US beef production this year is likely to be 5.5pc lower than last year.

 

“Up until now, we were expecting 2020 US production to be higher than last year, but that was before COVID,” Mr Quilty said. “But USDA has now revised their figures due to the recent COVID impact on processing activity (see graph, 202 trend line in black), effectively kicking the can down the road. Those 1.5 million cattle are now going to be slaughtered next year,” he said.

 

“That’s now lifted next year’s US beef production forecast up 6.7pc, and whenever that happens in America, there is significant impact on global pricing of beef, including in Australia,” he said.

 

The key question was: How far has the US kicked that can?

 

The USDA’s forecast 6.7pc increase in beef production next year represented about 780,000t of additional US beef, Mr Quilty said.

 

“In reality, the decisions about exactly when that impact is seen are being determined right now,” he said. “The US had had excellent rain, and pastures were in good condition. All the indications are that they are going to carry those 1.5 million head on pastures a lot longer, and as a result, when the decision is made, it is pretty much committed all the way through to August/September.”

 

“That’s the point where we will see those animals start going into feedlots in North America. Once they are on feed, the chances are we are going to see those same animals appear in slaughter in probably February, March and April next year – possibly starting as early as January.”

 

There was likely to be a condensed amount of US meat hit the market dramatically during the first quarter next year – 780,000t to be exact, Mr Quilty said.

 

“That is enough to really force the market down, which will impact beef prices, not only for the US, but also for Australia. That’s because we compete with the US in Japan, Korea, Indonesia and a host of other markets.”

 

“If the US has cheaper meat than we do, they are going to sell at much lower levels than we can, which will impact the price at which Australia can sell meat.”

 

It was important to understand that the US really set global beef prices, and arguably, lamb prices, he said.

 

“By understanding that, a good appreciation can be gained of just how severe this US beef carry-over of 780,000t is. It’s a ‘wall of meat’ that’s coming.”

 

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