Technical information - General

Grinding beef price to US could hit 220c/lb

BRAHMAN NEWS SEPTEMBER 2012 ISSUE #176

by Jon CONDON www.beefcentral.com

If recent history is anything to go by, Australian lean grinding beef into the US could hit prices as high as US215-220c/lb CIF by Christmas, a respected market analyst suggests.

A combination of factors led by US beef herd decline, the prolonged impact of drought, the sharp rise in feedgrain prices in the US, a declining herd size in Canada and normal seasonal demand cycles are all supporting the prospect of a substantial rise in imported grinding beef prices by end-of-year.

There is increasing trade speculation evident that US lean beef prices have 'nowhere to go but up', should moisture conditions improve into the northern hemisphere autumn and heading into early next year, says Len Steiner, from Steiner Consulting.

Also supportive of imported beef prices is the fact that some of the turbulence created by the bankruptcy and plant sales of AFA Foods (a large US grinder supplying burger patties to major restaurant chains) has now dissipated. "There was plenty of pent-up demand which is now showing up in the market," Mr Steiner said.

As the chart here shows, prices for imported lean grinding beef have been steadily rising over the last four years, in concert with the reduction in US domestic and imported lean beef availability. The chart also shows a tendency for the market to kick from around October through to year's end.

The steady increase in price has also come against the headwind of less competitive Australian currency versus the US$.

"While we could see some softening in prices after the Labor Day holiday (first week of September), the expectation is for imported beef values to drift higher through the end of the year," Mr Steiner said in his weekly report last week.

In 2009, the price of imported 90CL boneless beef rose from an early October low of US$1.34c/lb to $1.42c by the end of December, a 6pc premium. The following year, prices during this period rose 17pc, and last year, by 13pc.

"If prices this year follow the same trend as a year ago, and that is a big if, we could see imported lean beef values pull back by a US10-25c by the end of September and early October but then rally to US$2.15 -$2.20c by the end of the year," Mr Steiner said.

He stressed that this assumption was simply looking at the trends of recent years, with no regard of supply conditions, exchange rates, and the price of domestic US lean beef.