Friday, March 29, 2024

PULSE: Watchful eye on US markets

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The US imported beef market attracts plenty of attention from New Zealand bull beef farmers. Many know the market inside and out given the influence it has on farm gate bull and cow prices. The US takes over 30% of NZ’s total beef exports, having regained some market share that was earlier snatched by China. Of this beef, 80% that heads to the US is classed as manufacturing beef. This market not only underpins bull and manufacturing cow prices, but also provides a secondary influence to prime beef prices.
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Despite an uncertain global beef trade over the last 12 months, the US imported beef market has performed well, with prices tracking above year earlier levels since the new year. In the six weeks to mid-February, US imported 95CL lifted 27c/lb to peak at US$2.54/lb.

Driving prices higher was the lack of imported beef arriving in the US. Australian beef exports to the US are a fraction of normal levels. This lack of product created concern among US end-users, causing imported prices to start rallying significantly earlier than normal. However, a severe late-winter storm at the end of February derailed the upside in prices, as the industry dealt with widespread logistical and production disruptions.

Currently, the imported 95CL price is averaging US$2.44/lb. Softer trading conditions that have developed since the storms are considered timely. Typically prices don’t rally until April, allowing demand to develop naturally as the US gears up for peak spring grilling season. An inflated market now, when supplies are seasonally low, lessens the ability for imported prices to fully benefit from higher returns when our own supplies start to pick up.

NZ beef exports to the US peak through May and June, coinciding with the influx of cull dairy cows here and stronger market demand in the US. Season-to-date, the national cow kill is marginally lower than both last season and the five-year average. However, an increasing dairy payout here and little evidence of expanding dairy cow numbers in recent years will potentially limit the flow of cull cows in autumn too. Invariably, most will be looking to maximise returns in the new milking season, limiting the depth of culling. Even if dry autumn weather persists, it’s likely to only push a few extra cows into the processors.

Regardless of how this key supply period plays out domestically, the US imported beef market is facing a restricted supply of lean beef over the rest of 2021. Forecasts are pegging a 20% reduction, most of this driven by a lack of Australian beef. The US relies on lean imported beef to blend with fattier fed-cattle trim, to create the perfect hamburger formulation. While Brazil and Argentina are now able to access the US imported beef market, there has yet to be any solid expansion from these markets. The US will effectively have to “buy” South American meat away from China to shore up supplies within the US market. And they have been far from successful to date.

A strong summer grilling season in the US, combined with already tight imported beef supplies, should be the catalyst for further increases in imported beef prices. The upside could be gradual given the already high position of imported beef prices, but regardless, this could pay dividends for the already depressed bull beef market in the months ahead.

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