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Cattle Market Outlook - 1st February 2016

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Without a doubt, 2015 was an extraordinary year for Australian cattle markets. So what’s in store for 2016? Will the market continue the good fortune, or are we in for a few bumps in the road? In this webinar, MLA’s Ben Thomas joins Mecardo's Rob Herrmann to outline MLA's latest five-year cattle industry projections and what they mean for cattle prices. - See more

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Cattle Market Outlook - 1st February 2016

  1. 1. What to look out for in 2016 for cattle markets? 1 February 2016 Presented by: Ben Thomas, MLA & Robert Herrmann, 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 phone 2. Enter participant code = 24584740
  2. 2. Some housekeeping » 15 minutes Q&A at the end » Use Chat Box (bottom left, near cog) to lodge a question anytime during webinar » For any technical issues: – Dial to speak to Redback Conferencing • *0 • 02 8014 5150
  3. 3. 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.
  4. 4. 2016 Beef projections Ben Thomas – Manager, Market Information
  5. 5. 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?
  6. 6. Slaughter declined in 2015 – even with dry 0 20 40 60 80 100 120 140 160 180 200 ‘000head weekly slaughter 10 week rolling average
  7. 7. Adult slaughter down 16% in 2016 4 5 6 7 8 9 10 11 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015f 2017f 2019f Millionhead 7.6 million head
  8. 8. Jakarta wet market prices keep increasing 0 20 40 60 80 100 120 140 2007 2008 2009 2010 2011 2012 2013 2014 2015 ‘000IDR/kg Knuckle Blade Trimmings
  9. 9. Live cattle exports down 17% in 2016 0 0.2 0.4 0.6 0.8 1 1.2 1.4 Millionhead 1 million head
  10. 10. Herd dropping to 26 million head in 2016 15 17 19 21 23 25 27 29 31 33 35 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016f 2018f 2020f Millionhead Low natural increase will mean herd of 25.7 million head in 2017 – same as 1994
  11. 11. Cattle on feed trending towards 900k head 500 600 700 800 900 1,000 1,100 -2 -1.5 -1 -0.5 0 0.5 1 1.5 2 2.5 3 Feb-04 Oct-04 Jun-05 Feb-06 Oct-06 Jun-07 Feb-08 Oct-08 Jun-09 Feb-10 Oct-10 Jun-11 Feb-12 Oct-12 Jun-13 Feb-14 Oct-14 Jun-15 Feb-16 Oct-16 ‘000head Cattle on feed (RHS) 6-month rolling average margin index (LHS)
  12. 12. A$ forecast to stay below 70US¢ Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Westpac 0.68 0.66 0.66 0.67 0.69 NAB 0.7 0.68 0.69 0.7 0.7 CBA 0.66 0.65 0.67 0.69 0.7 Average 0.68 0.66 0.67 0.69 0.70
  13. 13. Beef and veal exports down 18% in 2016 400 500 600 700 800 900 1000 1100 1200 1300 1400 ‘000tonnesswt
  14. 14. Per capita consumption continue declining $0.00 $5.00 $10.00 $15.00 $20.00 $25.00 20 25 30 35 40 45 Kg/person Conumption (LHS) retail beef (real) retail chicken (real)
  15. 15. 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?
  16. 16. 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.
  17. 17. Thank you Ben Thomas bthomas@mla.com.au ph: 0400 300 612
  18. 18. 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.
  19. 19. 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
  20. 20. 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
  21. 21. 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”
  22. 22. Spread discounts to shrink
  23. 23. Heavy steer and EYCI price forecast
  24. 24. EYCI price forecast – supporting evidence
  25. 25. 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.
  26. 26. More information » Matt Dalgleish – Market Analyst – matt@agconcepts.com.au » More info – Andrew Whitelaw: – andrew@mecardo.com.au, 0457 054 169 » Non-Mecardo subscribers will receive one month of Mecardo Premium for free

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