Australian beef faces a perfect storm of competition and opportunity
by Alexandra BernardWith cold store supplies in the United States continuing to drop, the market is still providing strong opportunity for Australian beef, despite increasing competition presenting price pressure.
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Following the triggering of the Chinese and South Korean safeguard tariffs, Australian exporters are navigating ever-growing supply chain challenges while the US remains our biggest market.
While Australian beef exports to the US dropped slightly in July to 47,989 tonnes (shipped weight) - 2.5 per cent down from June - exports have been up by 11.5pc compared with this time last year.
With seasonal conditions, a reduced herd and high domestic prices in the US, Australia hasn't been the only country to shift more beef there in the past 12 months.
Typical of the season, with the US heading into the cooler months, combined with the higher imported supply, the US imported beef 90CL price has dropped.
The 90CL price indicator sits at US342.50 cents a pound or 1075 cents a kilogram, down from US376c/lb or 1178c/kg in April, but still sitting US15.5c/lb (about 50c/kg) higher than this time last year.
The latest weekly US imported beef market report from the Steiner Group said prices remained under pressure with imports accelerating in recent weeks.
Beef imports during the first four weeks of July into the US were up 23pc year-on-year, with lifts of 41pc from Brazil, Argentina up 304pc and New Zealand up 46pc.
The report said 90CL prices in particular had experienced downward pressure, with the gap between domestic and imported product historically wide and frozen 90CL trading at about a 22pc discount to the fresh product.
"Considering both the ample supply of imported product and the seasonal tendency for domestic grinding beef prices to lose ground after Labor Day, buyers are in no rush to bid on product for October/November delivery," the report said.
"China tariffs are a game changer that's playing out right now."
With Brazil on the edge of triggering an additional 55pc Chinese tariff of their own - sitting at more than 80pc of the about 1.106 million tonne quota - further competition for beef trim into the US could occur.
Episode 3's Matt Dalgleish said Brazil was the largest importer into the US and while it did not compete with Australia on primal cuts or in the Wagyu space, it could be a competitor for grinding beef.
"If their access to China was to be curtailed somewhat, that could be an option for them to try and target the US market more aggressively and with a cheaper product," he said.
Mr Dalgleish said Brazil had advantages with cheaper manufacturing and being geographically closer to be able to offer cheaper grinding beef, but there was still plenty of room in the US.
"We saw another month where the cold stores of beef in the US dropped by 3pc from last month and it's 3pc lower than this time last year, so we've had several years of less and less cold store availability within the US," he said.
"That means they're more reliant on imported products still and there's enough demand in the US given their domestic situation."
While the US was our biggest export market for 90CL, Mr Dalgleish said Australia's own domestic situation provided plenty of opportunity.
"If there was any kind of adjustment of flow, I'd argue that some of that potential exported product could be redistributed in the Australian sector presently as well," he said.
"We're still going through a stage here of some level of price inflation, we've still got issues around the fuel price ... there could be a few domestic reasons why the consumer would be favouring a cheaper option of beef mince rather than a sirloin."
Assisting the supply chain to mitigate risk during these periods of volatility is new beef trim futures and options contracts from CME Group (Chicago Mercantile Exchange).
Trading started at the end of July on 50CL and 90CL beef trim futures and options contracts, which CME Group's agricultural products executive director Nelson Low said were developed from demand from clients to manage risk within the processing sector.
"There's a lot of volatility going on right now in the US," he said.
"The US is at its smallest herd size since 1951 and it's driven prices up right across the US to historical highs and mince beef is no exception.
"It's hit a high recently and that volatility has resulted in the client base in the US needing a tool in order to manage price risk."
While Mr Low said the contracts would be an advantage to the US import side of the supply chain, Australian processors would also benefit.
"This marks a big change in the way the industry manages their risk," he said.
"[It] affords greater visibility, greater transparency as well as the fact that you can now trade with multiple counterparties instead of the minimum number of counterparties that you currently have and that improves pricing."
Mr Low said the beef trim contracts would allow Australian processors to mitigate concentration risk.
"One of the key strengths of any exporting nation is to have a diversity of nations they can export to," he said.
"But with the fact that geopolitics has become more and more central in trading decisions having these tools will enable you to manage your risk in a more appropriate manner
"With China increasingly controlling the amount of quota and non-quota requirements for imports of beef into China, there's never been a better time to have additional tools in the processors' toolkit in order to manage the different price risks that will occur from it."
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