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Where to for Australian cattle prices?21 July 2015
Presented by: Ben Thomas, MLA & Augusto Semmelroth, Mecardo
TO ACCESS THE AUDIO:
You may listen to the webinar using your computer speakers.
Alternatively (or if you have any quality or other issues):1. Dial 1800 896 323 on your phone2. Enter participant code = 55153077
Some housekeeping
» 15 minutes Q&A at the end» Use Chat Box (bottom left, near cog) to
lodge a question anytime during webinar» Short survey at end» For any technical issues:
– Dial to speak to Redback Conferencing• *0• 02 8014 5150
Disclaimer
Care is taken to ensure the accuracy of the information contained in this publication. However MLA cannot accept responsibility for the accuracy or completeness of the information or opinions contained in the publication. You should make your own enquiries before making decisions concerning your interests. MLA accepts no liability for any losses incurred if you rely solely on this publication.
Information contained in this publication is obtained from a variety of third party sources. To the best of MLA’s knowledge the information accurately depicts existing and likely future market demand. However, MLA has not verified all third party information, and 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.
Care is taken to ensure the accuracy of the information contained in this publication. However MLA cannot accept responsibility for the accuracy or completeness of the information or opinions contained in the publication. This information is not medical advice and you should consult a health professional before making any decisions concerning your interests.
About MLA
Meat and Livestock Australia Ltd (MLA) strives to be the recognised leader in delivering world class research, development and marketing outcomes that benefit Australian cattle, sheep and goat producers.
Working in collaboration with the Australian Government and wider red meat industry, MLA's mission is to deliver value to levy payers by investing in initiatives that contribute to producer profitability, sustainability and global competiveness.
MLA is a producer owned, not-for-profit organisation and not an industry representative body.
MLA does not collect or set the levy
• MLA
• Animal Health Australia
• National Residue SurveyProducer levy
Historically high adult cattle turn-off
Source: ABS, MLA f orecasts95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15f 16f 17f 18f 19f 20f
5
6
7
8
9 million head
f = f orecasts
Female slaughter has remained high…
Source: ABSJ F M A M J J A S O N D
42
44
46
48
50
52
54
% females of total
Five-year ave 2014 2015
Lowest cattle herd in 20 years
Source: ABS, MLA f orecasts95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15f 16f 17f 18f 19f 20f
20
22
24
26
28
30million head
f = f orecasts
Australian beef and veal exports
Source: DA, MLA f orecasts95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15f 16f 17f 18f 19f 20f
400
600
800
1,000
1,200'000 tonnes sw t
f = f orecasts
Take home messages
• Australian beef supplies are forecast to tighten considerably
• The herd rebuild will be a long and gradual process
• Keep an eye on production developments in the US
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.
– ↓Supply - ↓ A$ - ↑ export demand - ↑rainfall– Has not yet been fully priced into cattle
markets. » Focus on key drivers, US vs AUS market dynamics
and price forecasts.» Relevant information for strategic long-term
decision making.
Export and US-centric outlook
22%
12%
35%
31%
JapanKoreaUSOther
Figure 2. Beef exports by region - 2014/15
US/Jap/Korea = 70% Source: DAFF
50%
55%
60%
65%
70%
75%
80%
550
700
850
1,000
1,150
1,300
1,450
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
f20
18f
2020
f
ExportsExports - % of prod. (rhs)
Figure 1. Beef exports as % of production'000 tonnes swt
Source: DAFF, MLA Projections
» 70% of our exports are still directly or indirectly affected by US beef prices
US import demand vs AUS herd liquidation
300
350
400
450
500
550
600
650
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
2014 2015 5-year average
Figure 2. US Cow/Bull Slaughter'000 head
Source: USDA
150
200
250
300
350
400
450
500
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
2014 2015 Average
Source: DAFF, ACU
Figure 3. Australian cow/heifer slaughter'000 head
Surge in exports to US
-
5
10
15
20
25
30
35
40
45
50
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
2014 2015 5-year average
'000 tonnes swt
Source: DAFF
Figure 1. Australian beef exports to the US
-30%-20%-10%0%10%20%30%40%50%60%70%80%90%
- 50
100 150 200 250 300 350 400 450 500 550 600
Japan Korea US Dev. Asia Other2014/15 2013/14 Change year-on-year (rhs)
Figure 2. 2014/15 vs 2013/14 Beef Exports - by Country'000 tonnes swt
Source: DAFF
US vs AUS cattle prices
0
50
100
150
200
250
300
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400
1970
1973
1976
1979
1982
1985
1988
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1994
1997
2000
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2006
2009
2012
2015
US live cattle QLD Heavy Steer
Source: USDA, MLA, ACU
Figure 1. US live cattle vs QLD Heavy SteerUS¢/kg lwt
R² = 0.9213
0
50
100
150
200
250
300
350
400
0 20 40 60 80 100
120
140
160
180
200
US
Liv
e C
attle
QLD Heavy Steer
1969-2012
2013-14
2015
Source: USDA, MLA, ACU
Figure 2. US live steer vs QLD heavy steer - US¢/kg lwt
-70%
-60%
-50%
-40%
-30%
-20%
-10%
0%
1970
1973
1976
1979
1982
1985
1988
1991
1994
1997
2000
2003
2006
2009
2012
2015
% discount to US
Source: USDA, MLA, ACU
Figure 3. QLD Heavy Steer discount to US live steer
US cattle cycle and price outlook
0
50
100
150
200
250
300
350
400
60
70
80
90
100
110
120
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140
1970
1975
1980
1985
1990
1995
2000
2005
2010
2015
2020
US¢/kg lwt
Cattle Herd US Live CattleSource: USDA, MLA, ACU
Figure 1. US cattle cycle - US live cattle (Projections)million head
Finished cattle price outlook
» Scenario analysis– USDA long-term price forecast
(95%)– Exchange rate– Projected Discount to US price
» Conservative scenario:– AUD/USD: 80¢– Discount to US: 30%– Target ≈ 550¢
» Better-case scenario:– AUD/USD: 70¢– Discount to US: 25%– Target ≈ 650¢
100
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2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
Forecast Range QLD Heavy Steer
Source: USDA, MLA, ACU
Figure 1. QLD heavy steer price forecastA¢/kg cwt
Domestic cattle bridging the gap
200250300350400450500550600650700750800
A¢/kg
EYCI 90CL (A$)
Source: MLA, Steiner
Figure 1. EYCI vs 90CL Frozen Cow
-400
-350
-300
-250
-200
-150
-100
-50
0
50
100A¢/kg
EYCI spread to 90CL
Source: MLA, Steiner
Figure 2. EYCI spread to 90CL Frozen Cow
Bullish outlook for export beef prices
50
100
150
200
250
300
350
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
90CL US 90CL AUS
Figure 1. 90CL US Domestic vs 90CL ExportUS¢/lb
Source: USDA, Steiner
-35%
-30%
-25%
-20%
-15%
-10%
-5%
0%
5%
10%
15%
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Range 70%2015201410 Year Average
Source: MLA's NLRS, Steiner, ACU
Figure 2. 90CL Export (AUS) spread to 90CL US
EYCI model – return to fair value
200250300350400450500550600650700
2000
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2006
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2008
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2011
2012
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2015
2016
¢/kg cwtFigure 1. EYCI and EYCI price model
EYCIEYCI ModelProjection
Source: MLA, ASX, Steiner, ACU
-300
-250
-200
-150
-100
-50
0
50
100
1997
1998
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2000
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2002
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2006
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2010
2011
2012
2013
2014
2015
¢/kg cwt
Figure 2. Spread - EYCI to model
Source: MLA, ASX, Steiner, ACU
Drought
EYCI price outlook
» Scenario analysis– Estimated 90CL price based on
US live cattle forecast (70-80% premium)
– Spread to US Domestic 90CL to return to -5 to -10%.
– Grain prices to ease slightly from current levels
– AUD/USD: 70¢
» Forecast model - Caveat– Calculates fair value based on
export/grain fundamentals.– Underestimates EYCI potential
under positive rainfall scenario - by up to 5-10%.
200
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2020
¢/kg cwt
EYCIEYCI ModelForecast
Source: MLA, ASX, USDA, Steiner, ACU
Figure 1. EYCI, price model and forecast
Store vs finished cattle prices
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
35%
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Range 70% Average 2015 2011
Source: MLA's NLRS, ACU
Figure 1. EYCI restocker NSW spread to Heavy Steers
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
55%
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Range 70% Average 2014 2015
Source: CME, ACU
Figure 2. US Feeder spread to Live Cattle
-5%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Range 70% Average 2014 2015
Source: CEPEA/ESALQ, ACU
Figure 3. Brazilian Weaner spread to Live Cattle
Take home messages» MLA and USDA projections are the backbone for our price outlook» Move towards a more export-centric cattle/beef market» US cattle cycle and US import demand – major drivers of Aussie cattle
markets until 2020» Domestic cattle markets remain slightly undervalued» Heavy steer price outlook – 550-650¢/kg cwt» EYCI price outlook – 650¢ (fair value) +700¢/kg cwt (favourable
seasonal conditions)» Favourable export fundamentals finally starting to drive domestic
prices– Improved price transfer: Export-Processor-Producer
» Store cattle fundamentally undervalued – lacklustre restocker demand» Potential outperformers in the next years (cows/heifers? young cattle?)
More information & Survey
» More info - Jenianne Hall:– [email protected], 0438 624 154
» Non-Mecardo subscribers will receive one month of Mecardo Premium for free