Interesting Three Months Ahead for Markets

AUSTRALIA - With another very wet first quarter of the year coming to a close, the next three months are set to pose some interesting questions and challenges for cattle and beef markets. While the path of the A$ and the strength of export demand in coming months will make for interesting watching, the largest questions being posed surround the anticipated supply of cattle heading into the traditionally higher turnoff months of May and June.
calendar icon 5 April 2012
clock icon 2 minute read
Meat & Livestock Australia

With the two wettest years on record across the key cattle producing regions of Australia underpinning female retention and herd growth, supplies are anticipated to increase in the second quarter of 2012. Indeed, the disruption caused by flooding to the logistics throughout the first quarter of 2012 may even add to the number of cattle that enter the market between April and June.

However, when looking at the anticipated increase in cattle coming to the market in the second quarter, it must be noted that seasonal influences almost always see slaughter numbers increase into May and June, as producers in the north sell cattle following the cessation of the wet season, while southern producers look to reduce numbers heading into winter.

A review of historical numbers for the past decade shows that given the seasonality associated with adult cattle slaughter during the second quarter of the calendar year, throughput numbers have always been greater than the first quarter – averaging 11 per cent higher.

Given the increased supply in the second quarter, it should also be noted that a similar review of average prices between the first and second quarters of the calendar year shows a tendency to lower prices in the second quarter, but with no clear trend.

Indeed, according to MLA’s NLRS national saleyard averages, for the past 10 years, the average price for heavy steers in June has been below the average in March for six of the ten years, but only averaging a decline of one per cent over the ten year period. Demonstrating the contrasting market factors from year-to year, in 2011 the average heavy steer price in June was 12 per cent below the average in March, while the average monthly price in June was higher than March in 2008 (nine per cent), 2009 (three per cent) and 2010 (four per cent).

Assuming an increase in cattle supplies in the coming three months, there is expected to be additional downward pressure upon cattle prices. Indeed, if the current malaise for Australian beef in export markets, especially Japan and Korea, continues through to June, the pressure upon prices could be magnified. However the recent decline in the A$ will provide some hope for an improvement in export demand and prices, along with the expectation for demand from the US to remain positive.

However, the one elusive factor to consider for the coming three months is how producers will react to any decline in cattle prices, given that most would be flush with feed and water, providing the flexibility to hold cattle if prices are deemed unfavourable.

TheCattleSite News Desk

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