Why Simon Quilty has a bullish 5 yr outlook for cattle costs

WITH the American cattle herd heading for a 70-year low and Australian meat wanted to fill the void, livestock costs may see a major restoration over the subsequent three years.

That’s in line with unbiased livestock analyst Simon Quilty, from International Agritrends, who gave final week’s RMA convention on the Gold Coast an in-depth evaluation of the elements prone to drive the cattle market within the subsequent three years – with a forecast of feeder steer costs reaching $6/kg in 2026-27.

Mr Quilty began by addressing the present worth crash, placing it all the way down to a to a “reasonable herd enlargement” and a processing bottleneck brought on by a scarcity of labour.

“For those who have a look at the final time we had falls in costs in Australia, between 2011 and 2013 costs fell 32pc over a 73-week interval and the common weekly kill was 122,000 head. Then we had the interval of 2016-19 the place we had a 38pc fall and the common weekly kill was 122,000 head,” he mentioned.

“This newest fall in costs has taken the shortest period of time and we’ve had the most important fall of all at 41pc and 48pc in some classes and the common weekly kill was 87,000 head.

“We merely wouldn’t have the capability and the manpower to kill the cattle. It isn’t a very massive variety of cattle, however the labour constraints have been sufficient to create a bottleneck.”

Mr Quilty spoke about the opportunity of a rise in capability with some new vegetation opening within the Southern States. He requested JBS Southern livestock supervisor Steve Chapman whether or not a rise in capability was possible within the subsequent six months.

Mr Chapman mentioned it was unlikely to occur inside the subsequent six months and was extra of a six-to-12-month prospect.

“At JBS, we’ve skilled an infinite folks problem during the last 12-to-18 months,” Mr Chapman mentioned.

“For those who take Bordertown for example, we’ve bought a motel to accommodate 76 Pacific Islanders simply to get folks there.

“We can not make use of sufficient folks to extend capability. If we glance again previous to Covid, we may double shift any plant in eight weeks, now it takes eight-to-nine months.”

US susceptible to additional herd liquidation

One other issue contributing to the worth crash is the quantity of meat in chilly storages making a backlog in a few of Australia’s key markets. A scenario addressed on this earlier Beef Central article.

Whereas there are numerous demand elements contributing to the overloaded chilly storage, a large-scale liquidation of the American cattle herd has additionally performed a major function.

Simon Quilty

With an El Nino induced dry interval on the playing cards in Australia, America is prone to see the other and the drought is already beginning to break in some areas.

Mr Quilty displayed a webinar the place he requested his International AgriTrends colleague Brett Stuart about the opportunity of an additional herd liquidation within the US.

“There are some fairly essential areas round Missouri, Western Kansas and Japanese Nabraska which might be nonetheless fairly dry,” Mr Stuart mentioned.

“I believe we may nonetheless see come cattle pushed into feedlots and cows persevering with to be culled and that may be a fairly cattle dense space.”

Mr Quilty mentioned the US herd was heading in the direction of a 70-year low, which he mentioned was prone to push international worth increased.

“It’s the longest drought of their historical past, it lasted 132 weeks the place greater than 42pc of the whole nation was in drought. The most important drought previous to that was in 2012-13 which lasted for half the time,” he mentioned.

“The extra they liquidate, the higher for Australia afterward as a result of costs are solely going to do one factor – go up.”

“Flight to high quality” to emerge

Whereas some areas of the USA are dry, different main cattle producing areas have seen rain and flooding in current instances. A yawning hole in costs has emerged between the US and Australian.

Mr Quilty mentioned a “flight to high quality” was prone to emerge with the US cattle costs rising. He mentioned some international locations like Japan had been prone to come to Australia on the lookout for increased high quality meat.

“The Japanese should pay the US extra and so they come to Australia to purchase it cheaper from us,”

“We transfer with America as costs go increased in all these markets. Grainfed beef will change into tighter and tighter because the US rebuilds and the flight to high quality will return.

“China goes to maintain shopping for meat, they’re actually the most important purchaser globally and their wants are going to proceed. It has been just a little sluggish lately, however we’re assured their demand will proceed over the subsequent three years.”

Mr Quilty spoke concerning the Australia herd beginning to transfer out of its herd rebuild part, with a rise in cows and heifers going to processors. An remark most of the brokers within the room additionally made.

“I believe we’re going to see all these feminine ratios go increased and better because the dry units in,” he mentioned.

“You would argue that NSW has already began liquidating its herd.”

Mr Quilty mentioned it was possible that by 2026-27, three international cycles had been prone to come along with tight provide within the US, tight provide in Australia and tight provide in South America.

“For the primary time in my lifetime I believe the three cycles will overlap, demand can be sturdy and distinctive,” he mentioned.