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Cattle slaughter forecasts for 2021 may reach lowest levels in 36 years.
September 10, 2020
The Australian beef industry is carrying out a major herd rebuilding after being decimated by a two-year drought in 2018 and 2019, according to a newly released U.S. Department of Agriculture Global Agriculture Information Network (GAIN) report. The rebuilding is expected to be in full force during the second half of 2020 and continue into 2021 and beyond, the report suggested.
“Widespread rains in Australia since the start of 2020 and forecasts for above-average rainfall in coming months have triggered strong re-stocker demand and raised cattle prices in Australia to record levels,” USDA attaché Zeljko Biki reported.
Because of the herd rebuilding, USDA’s Foreign Agricultural Service office in Canberra, Australia, forecasts lower cattle slaughter, cattle exports, beef production and beef exports again in 2021, although these declines will be much smaller than the drop in 2020.
According to the report, cattle slaughter in Australia is expected to fall as a result of reduced cow slaughter, as more females will be retained for breeding. Nationally, the female slaughter rate was at an average 51% in 2018 and dramatically escalated to 56% in the second year of drought in 2019, which Biki said greatly exceeded the 10-year average of 48%.
“Even during the first half of 2020, this rate remained elevated at 54%, indicating that herd rebuilding had not yet commenced during the first half of 2020," the GAIN report added. "Broad consensus is that the annual average female slaughter rate needs to be at 47% or lower for the national herd size to rebuild.”
The report explained that lower cow slaughter in 2021 is projected to be only partially offset by higher male cattle slaughter, which is pegged at 3.8 million head, up 6% from 2020. Still, the favorable seasonal conditions in 2020 have resulted in ample pasture production, which, in turn, has led cattle producers to retain more feeder cattle to grow them out on pasture, delaying slaughter into 2021 rather than in 2020.
USDA forecasts total cattle slaughter in 2021 to decline to 7.4 million head, from an estimated 7.625 million head in 2020. If realized, Biki said this slaughter number will be the lowest in 36 years.
Even with anticipated higher carcass weights, reduced slaughter is expected to lower beef production by 35,000 metric tons in 2021, down 2% from 2020 and the lowest level since 2003. This is expected to lead to another year of smaller Australian exports in 2021, down 4% from 2020.
Export pace limited
USDA revised its estimate for Australian beef exports in 2020 higher to 1.425 million mt (carcass weight equivalent) due to the strong pace of exports during the first half of the year. Even with COVID-19 disruptions, exports for the January through June 2020 period were 780,00 mt (carcass weight equivalent), only a 2% decline from the same period in 2019.
However, Biki said the number of cattle slaughtered during the second half of 2020 is expected to drop significantly, causing a sharp slowdown in the export pace. Beef exports for 2020 are estimated to be 18% lower than the near-record exports in 2019, he added.
Rabobank recently reported that Australia’s beef exports were 23% lower in July, with big reductions seen in the Japanese, Chinese and South Korean markets.
Biki noted that the strengthening Australian dollar will be an additional headwind in the second half of 2020. Since June 2020, the Australian dollar has continued to strengthen steadily and was at $1.35 at the end of August.
Biki pointed out that the top export destinations for Australian beef are China, Japan, the U.S. and South Korea, accounting for 75-80% of Australian beef exports over the last three years. Even with the many challenges during the first half, he said exports to each of these four destinations remained surprisingly stable despite the differing impacts of the COVID-19 pandemic.
While exports to China had been climbing in recent years, Biki said further substantial increases are unlikely due to reduced Australian beef production as well as a slowdown in exports during the second half of 2020. Further, beef exports to China at the end of June reached a level that triggered a safeguard, which, as part of the China-Australia free trade agreement, means that shipments for the rest of the year would have a 12% tariff versus a 4.8% tariff earlier in the year. Additionally, China has suspended beef export shipments from a number of Australian plants.
Market recap
December live cattle futures were higher Tuesday after the holiday weekend, closing at $110.125/cwt. Despite losses Tuesday, contracts closed higher Thursday at $109.425/cwt.
November feeder cattle futures followed the same trend, closing higher Tuesday at $140.725/cwt. and Thursday at $140.40/cwt. after losses on Wednesday.
The Choice and Select cutouts closed lower at $220.83 /cwt. and $207.32/cwt., respectively.
December lean hog futures posted gains this week, especially following news on Thursday that African swine fever was discovered in a wild boar in Germany. Contracts closed higher Tuesday at $58.675/cwt. and Thursday at $62.85/cwt.
The pork cutout was mostly higher this week. The wholesale pork cutout closed higher at $80.86/cwt. Loins and hams closed higher at $69.78/cwt. and $75.77/cwt., respectively. Bellies were $132.12/cwt., up from $126.71/cwt. last week.
Hogs delivered to the western Corn Belt were higher than the week before, closing at $51.07/cwt., up from $43.97/cwt. last week.
The U.S. Department of Agriculture reported the Eastern Region whole broiler/fryer weighted average price at 63.59 cents/lb. on Sept. 4.
According to USDA, egg prices were steady, with a steady undertone. Supplies were mixed, and offerings were moderate. Demand was moderate to fairly good.
Large eggs delivered to the Northeast were unchanged at 86-90 cents/doz. Prices in the Southeast and Midwest were also unchanged at 90-93 cents/doz. and 78-81 cents/doz., respectively. Large eggs delivered to California were $1.54/doz.
For turkeys, USDA said the market was steady to firm, and demand was light to good. The price range for hens was $1.08-1.17/lb., and the price range for toms was $1.06-1.15/lb.
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