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CME: Lower Australian Imports of Lean Boneless Beef

03 November 2016

US - In today’s DLR we are going to review and provide an update on the boneless beef 90’s and 50’s wholesale market, reads the latest Daily Livestock Report is published by Steiner Consulting Group, DLR Division, Inc.

For a quick definition, when talking about 50 per cent lean boneless beef, the other 50 per cent of that mix is fat. As you can see in the graph to the right, the two products have shown significantly different price patterns this year in terms of volatility.

The difference in price patterns is not completely unexpected, as these two products come from different sources. The 90 per cent lean boneless beef comes from cull cows and import sources.

Domestically, our cull cow slaughter total is up 4.3 per cent to-date compared to 2015. Looking at beef imports, total imports through August were down 13 per cent.

Not all imports are 90 per cent lean boneless beef, however the majority of imports from Australia are that product. Again through August this year, imports from Australia were down 34 per cent compared to 2015.

These imports are lower due to improved moisture conditions in Australia which has led them to start rebuilding their cattle herd after drought forced liquidation. This 34 per cent decrease so far year-over-year totals to 313 million pounds less product coming into the US from Australia.

Of course not 100 per cent of it is 90 per cent boneless beef. Revisiting the increase in our cull cow slaughter this year, and using the USDA-NASS reported Federally Inspected monthly cull cow slaughter totals and average cull cow dressed weights, we have produced 387 million pounds more beef from the cull cow market this year through August compared to 2015.

Again, not 100 per cent of this product is sold as 90 per cent boneless beef, but the majority of it is. The story on the 90 per cent lean boneless beef is shown in the graph, with the above analysis describing some of the main factors influencing price movements.

Although we are importing less beef, we have made up for it with increased cull cow slaughter, and as the price of fed cattle has fallen the value of cull cows comes down as well. Moving on to the 50 per cent lean boneless beef graph, the price line in 2016 is obviously much more volatile.

Within this price line though you can pick up some of the key trends in the industry since mid-2015. Starting June of 2015, the price on 50 per cent lean boneless beef started a stark and steady decline.

This was around the time the industry began to feel effects of backing up cattle in the feedlot that then consequently got over fat and too heavy. This created an increase in 50 per cent lean boneless beef production, which is simply the trimmings off of fed steer and heifer carcasses.

In 2016 so far, it can be argued we have not seen another sustained price decline in 50’s to the extent of the one experienced last year, but the volatility is impressive. Fed heifer and steer slaughter through October of 2016 was 4.5 per cent higher compared to 2015’s.

This led to increased beef production, increased 50 per cent lean boneless beef, lower prices, and that part all makes sense. The 50 per cent lean boneless market is historically more volatile, especially compared to 90’s.

What is less clear is the noticeably increased volatility in 2016, aside from being caused by the large kill weeks we have seen this year. Overall though, we think the volatility in the 50 per cent lean boneless market has contributed to the overall volatility and lack of confidence in the cattle and beef market. However, the good news is this year we have not started backing up cattle at the feed yard, and with time as the market adjusts to increased supply, this price series should smooth out.

Daily Livestock Report - Copyright © 2008 CME. All rights reserved.

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