Rain to drive cattle market story in 2020

Rain to drive cattle market story in 2020

RAIN will rule supreme in terms of dictating the cattle market story and the shift to herd rebuilding in 2020, despite international factors including extremely robust demand packing a big punch.

This is the picture painted by the latest outlook from key provider of market information, Meat & Livestock Australia.

In what would arguably be one of the most challenging set of projections to pull together given the enormous variables at play, MLA’s analysts say Australia’s cattle herd will this year fall to the lowest level in almost three decades.

Conditions remain in the balance, which is creating volatility – the sharp spike in the young cattle market of the past few weeks speaks to that.

MLA senior market analyst Adam Cheetham said the widespread rainfall had created restocker optimism but was best described as useful.

It hasn’t fallen in all regions and far more was needed over coming months before herd rebuilding would start in earnest, he said.

Turnoff is expected to remain elevated for the first part of 2020.

A return to average seasonal conditions could see female turnoff finally start to drop off but it will take a lot to shift it back to levels where the herd is no longer considered in contraction, Mr Cheetham said.

“For the past 12 months, the percentage of female kill has been at unprecedented levels,” he said.

It has been sitting at 55 per cent on a 12-month rolling average for the past year, well above the 47pc benchmark which is typically considered the point at which herd contraction shifts into herd rebuilding.

From June until August last year, it sat at 58pc, by far the highest ever seen.

MLA analysts don’t believe it will ease back to that turning point before June, and only then if the season has continued to improve.

They have forecast the national herd to decline 5.8pc year-on-year by the end of June to 24.7 million head, representing a cumulative fall of 12.4pc since June 2018.

That is an increase in the degree to which the herd is expected to contract on the last MLA projections issued in October and is the result of continued elevated destocking.

It has been the strength of global demand, and thus solid prices, that has supported the cattle market during this period of high turnoff.

“The global protein market experienced an exceptional year in 2019 with the impact of African Swine Fever in China creating a significant protein deficit and reshaping the global meat trade as more product was directed into China,” Mr Cheetham said.

China became Australia’s largest market by volume on the back of an 85pc growth in exports to this market.

Can we repeat that, given the projections are for production to decrease by 13pc to 2.1m tonnes?

“There is certainly the expectation of strong demand from China, with the ASF impact likely to be apparent for the next five years, however there will likewise be strong demand from other markets,” Mr Cheetham said.

While international factors – not just demand but exchange rates, competitor’s production and even events like the coronavirus outbreak – are expected to continue to have a big impact, Mr Cheetham said it would be the weather that has the largest influence on domestic cattle prices.

Should those global influences combine with an improved season, MLA’s projections say “historically high, if not record, cattle prices will likely be reached and maintained in the next few years.”

Even without good rain, finished cattle prices should remain at historically high levels as a result of the strong demand fundamentals.

“For the past 18 months, the EYCI (Eastern Young Cattle Indicator) has largely traded and moved on weather shifts,” Mr Cheetham said.

“The last few weeks have demonstrated a continuance of that trend.

“Young cattle and breeding stock prices will be influenced significantly by the extent of the improvement in pasture availability.”

 

Article credit – www.farmonline.com.au