Buoyed by strong rainfall across eastern Australia since the start of the year, cattle restocker demand has seen the Eastern Young Cattle Indicator surge to 755¢/kg, breaking its August 2016 record of 726¢/kg.
While the pace of the EYCI’s 58 per cent jump in less than two months is unprecedented in the modern Australian cattle market, NAB’s Beef in Focus report reveals the cattle market faces two substantial risks.
Firstly, the strength in the restocker market comes after only two months of rain in limited production areas, following severe and protracted drought.
Secondly, three of Australia’s largest beef export markets (China, Japan and South Korea) are facing serious coronavirus outbreaks, which have the potential to negatively impact on demand fundamentals.
NAB agribusiness economist Phin Ziebell said the three-month rainfall experienced during the current price rally was very different to 2016.
“Since January, many — but not all — areas have seen excellent rainfall and soil moisture levels across northern NSW, the Darling Downs and central Queensland have led to spirited activity in the cattle restocker market,” Mr Ziebell said.
“Conversely, the 2016 rally occurred during some of the best seasonal conditions in living memory.
“While some areas now have enough moisture to see them through, many still need a full season of above average rainfall to recover and this is a risk for prices.”
Export fundamentals were strong in 2019, and NAB agribusiness customer executive Khan Horne said the impact of coronavirus on premium protein demand across East Asia and South-East Asia could pose challenges for the market.
“So far, Chinese domestic wholesale prices have held up despite coronavirus,” Mr Horne said.
“With African swine fever decimating the Chinese pork industry, protein demand remains very strong with Meat & Livestock Australia reporting Chinese beef import volumes up 60 per cent in 2019.
“Beyond China, South Korea and Japan are dealing with major coronavirus outbreaks, and US preparedness to manage the virus remains unclear.
“The extent to which Australian beef exports will be impacted remains to be seen, particularly given the uncertain effect on supply chains if the pandemic stage is reached. Overall, it’s a risk that requires careful monitoring.”