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 following three years.

That’s in keeping with unbiased livestock analyst Simon Quilty, from World Agritrends, who gave final week’s RMA convention on the Gold Coast an in-depth evaluation of the components more likely 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 value crash, placing it all the way down to a to a “reasonable herd growth” and a processing bottleneck attributable to 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 typical weekly kill was 122,000 head. Then we had the interval of 2016-19 the place we had a 38pc fall and the typical weekly kill was 122,000 head,” he stated.

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

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

Mr Quilty spoke about the potential of a rise in capability with some new crops 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 stated it was unlikely to occur throughout the subsequent six months and was extra of a six-to-12-month prospect.

“At JBS, we’ve got skilled an unlimited individuals problem over the past 12-to-18 months,” Mr Chapman stated.

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

“We can’t make use of sufficient individuals 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 weak 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 state of affairs addressed on this earlier Beef Central article.

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

Simon Quilty

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

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

“There are some fairly vital areas round Missouri, Western Kansas and Jap Nabraska which are nonetheless fairly dry,” Mr Stuart stated.

“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 stated the US herd was heading in the direction of a 70-year low, which he stated was more likely to push international value greater.

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

“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 latest instances. A yawning hole in costs has emerged between the US and Australian.

Mr Quilty stated a “flight to high quality” was more likely to emerge with the US cattle costs growing. He stated some international locations like Japan had been more likely to come to Australia searching for greater high quality meat.

“The Japanese need to pay the US extra they usually come to Australia to purchase it cheaper from us,”

“We transfer with America as costs go greater in all these markets. Grainfed beef will turn out to be tighter and tighter because the US rebuilds and the flight to high quality will return.

“China goes to maintain shopping for meat, they’re really the most important purchaser globally and their wants are going to proceed. It has been slightly sluggish not too long ago, however we’re assured their demand will proceed over the following three years.”

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

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

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

Mr Quilty stated it was possible that by 2026-27, three international cycles had been more likely 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 will likely be sturdy and distinctive,” he stated.