cattle market outlook - 1st february 2016
TRANSCRIPT
What to look out for in 2016 for cattle markets?
1 February 2016
Presented by: Ben Thomas, MLA & Robert Herrmann, Mecardo
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Before we start» Presentation is content rich – Charts and Figures.» Charts will be used to show trends and tell a story – don’t get
too caught up on the details.» Outlook remains bullish for cattle markets, albeit not as
strong as in 2015. » Focus on the US cattle cycle and its impact upon local prices» Shrinking local discount to US prices due to tightening cattle
turnoff» Herd rebuild phase to support store cattle prices to see them
outperform finished lines
» Relevant information for strategic long-term decision making.
2016 Beef projectionsBen Thomas – Manager, Market Information
We know the trend, but…
How low will beef supplies go?
When exactly will that be?
How high will cattle prices go? Or have we already hit the peak?
What markets will be least / most affected?
Slaughter declined in 2015 – even with dry
2010 2011 2012 2013 2014 2015 20160
20,00040,00060,00080,000
100,000120,000140,000160,000180,000200,000
weekly slaughter 10 week rolling average
Adult slaughter down 16% in 2016
1977
1980
1983
1986
1989
1992
1995
1998
2001
2004
2007
2010
2013
2016
f20
19f
4000
5000
6000
7000
8000
9000
10000
110007.6 million head
Jakarta wet market prices keep increasing
2007
2008
2009
2010
2011
2012
2013
2014
2015
0
20000
40000
60000
80000
100000
120000
140000
Knuckle Blade Trimmings
Live cattle exports down 17% in 2016
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
f20
18f20
20f
0
200
400
600
800
1000
1200
14001 million head
Herd dropping to 26 million head in 2016
1970
1973
1976
1979
1982
1985
1988
1991
1994
1997
2000
2003
2006
2009
2012
2015
f20
18f
15000
17000
19000
21000
23000
25000
27000
29000
31000
33000
35000Low natural increase will mean herd of 25.7 million head in 2017 – same as 1994
Cattle on feed trending towards 900k head
Feb-04
Dec-04
Oct-05
Aug-06
Jun-0
7
Apr-08
Feb-09
Dec-09
Oct-10
Aug-11
Jun-1
2
Apr-13
Feb-14
Dec-14
Oct-15
Aug-16
-2-1.5
-1-0.5
00.5
11.5
22.5
3
500,000
600,000
700,000
800,000
900,000
1,000,000
1,100,000
Cattle on feed (RHS)6-month rolling average margin index (LHS)
A$ forecast to stay below 70US¢
Dec-15 Mar-16 Jun-16 Sep-16 Dec-16Westpac 0.68 0.66 0.66 0.67 0.69NAB 0.7 0.68 0.69 0.7 0.7CBA 0.66 0.65 0.67 0.69 0.7Average 0.68 0.66 0.67 0.69 0.70
Beef and veal exports down 18% in 2016
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
f20
18f20
20f
400000
500000
600000
700000
800000
900000
1000000
1100000
1200000
1300000
1400000
Per capita consumption continue declining
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
f20
18f20
20f
20
25
30
35
40
45
$0.00
$5.00
$10.00
$15.00
$20.00
$25.00
Conumption (LHS) retail beef (real) retail chicken (real)
Kg/
pers
on
Conclusions
• Australian cattle supplies will bottom out in 2017
• Production will recover quicker than in previous drought recoveries
• Exports continue to stretch product on the domestic market
• Prolonged period of lower year-on-year quarterly production
While the likely trends are clear, the speed of change and market impacts are less so• How high are cattle prices going?
• How quickly can the herd and production be turned around?
• Which markets are likely to react more to the lower product availability and higher prices?
About MLA
Meat and Livestock Australia Ltd (MLA) strives to be the recognised leader in research, development and marketing.
MLA delivers value to levy payers by investing in initiatives that contribute to:
• Producer profitability
• Sustainability
• Global competitiveness
MLA is a producer owned, not-for-profit organisation and not an industry representative body.
Disclaimer
To the best of MLA’s knowledge the information contained in the publication accurately depicts existing and likely future market demand. However, forecasts and projections are imprecise and subject to a high degree of uncertainty.
MLA makes no representations and to the extent permitted by law excludes all warranties in relation to the information contained in this publication. MLA is not liable to you or to any third party for any losses, costs or expenses, including any direct, indirect, incidental, consequential, special or exemplary damages or lost profit, resulting from any use or misuse of the information contained in this publication.
US Cattle Cycle and US Cattle Prices
» Cattle supply and prices are cyclical
» 8 major cycles over the last 100 years
» Expansion phase 3-8 years
» Liquidation phase 2-5 years
US Cattle cycle influence on Australian prices
» Similar cycles in Australia but impact on price is subdued
» Australian market is “export-centric”
» Domestic cattle prices should follow US cattle and beef markets
Australian cattle cycle and US influence
» Strong price correlation between US and Australia
» During 2013-14 domestic market deviated
» 2016 season signals a return to “normal”
Spread discounts to shrink
Heavy steer and EYCI price forecast
EYCI price forecast – supporting evidence
Take home messages» MLA and USDA projections are the backbone for our
price outlook» Cattle markets present distinct long-term structural
supply cycles, which in turn, determine price cycles.» Tightening cattle turnoff in 2016 will continue to see
discounts to US prices shrinking to underpin firm domestic cattle prices.
» The EYCI, and store cattle in general, will outperform finished lines in 2016.
» Cattle producers should enjoy favourable margins, particularly breeding operators.
More information
» Matt Dalgleish – Market Analyst– [email protected]
» More info – Andrew Whitelaw:– [email protected], 0457 054 169
» Non-Mecardo subscribers will receive one month of Mecardo Premium for free