Marke t Insights
KEEP YOUR EYES ON THIS. Matt Dalgleish, Thomas Elder Markets. A short summary of key factors to keep an eye on in red meat markets during the 2021 season.
CATTLE MARKET GLOBAL CATTLE VS DOMESTIC CATTLE PRICES
ONGOING TRADE TENSIONS AND THE GROWTH OF US BEEF EXPORTS TO CHINA
Tight supply and more favourable seasonal conditions have seen Australian cattle prices reach for the stars during 2020, eliminating the normal premium spread held by US cattle. Further to the strong domestic cattle prices, the Australian dollar has appreciated significantly, eroding our international competitiveness in global beef markets.
Don’t expect the Chinese Australian trade tensions to fade into 2021. The Biden administration in the USA are committed to keeping the Trump Phase One trade deal with China, which has already seen a significant increase in US beef flows to China during the 2020 season at the expense of Australian beef exporters.
The prospect of an Australian dollar into the high 70US cent region, or even above 80US cents into 2021 will act as an additional headwind on cattle prices. Furthermore, Australian beef processors have been battling with negative profit margins for much of the 2020 season. This tough trading environment for beef processors is not expected to ease into 2021, given the forecast for the lowest beef herd in nearly thirty years. Therefore, there will be limited opportunity for Aussie finished cattle prices to continue to climb higher into 2021. Despite the strong desire to restock, young cattle prices will also be limited as to how far they can extend higher too, without finished cattle prices moving higher.
Australia’s frosty relations with China appear unlikely to thaw out anytime soon. In 2010 China put Norway in the trade “sin bin”, cutting off their salmon exports and the trade spat between them lasted for about six years. Expect China to continue to make an example of Australia in 2021 with beef exports remaining in Chinese sights as one of several trade targets to punish us. SLOW HERD REBUILD AND THE RETURN OF DROUGHT The female slaughter ratio has been slow to return to levels consistent with a herd rebuild, despite some obvious restocker activity in southern regions. A prolonged herd rebuild is a concern given the potential for the Australian climate to switch back into drought mode.
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