US imported beef price premium

28 March 2018

US imported beef traded at a premium to domestic lean beef in February and March. Expectations are for this trend to continue through until at least the end of April.

Limited overseas supplies and strong competition from Asian markets have supported imported beef prices. In contrast, higher US cattle slaughter should bolster domestic supplies and therefore apply pressure to domestic beef prices in the coming months.

The imported 90CL beef indicator eased US1.5¢, to US211¢/lb CIF (up AUD4¢ at AUD603.28¢/kg CIF).

Cattle futures

US cattle futures have continued to decline sharply, the result of concerns surrounding the backlog of market-ready cattle in June and July. The marketing rate in February (ratio of cattle marketed relative to the inventory) was 14.4% compared to 15.3% last year.

Fed cattle contracts (April and May) have dropped close to 10% in value during the last four weeks. Further declines could be in the pipeline this week as the effects of a potential ‘trade war’ (causing weaker economic growth) have a negative impact on fed cattle trading, something equity markets have already started to consider. In addition, the latest United States Department of Agriculture cattle on feed report (released last Friday) indicated higher than forecast feed supplies at 11.7 million head, up 8.8% on the year prior.

Cattle on feed

The aforementioned cattle on feed supplies as of 1 March reflect the largest on feed March inventory since March 2006. Higher than expected cattle placements in February supported on feed supplies, with placements recorded at 7.3% higher year-on-year and 12.9% higher than the five-year average. A larger annual calf crop, deteriorating pasture conditions leading to cattle entering feedlots earlier than normal and an increase in female placements caused by reduced profitably were key drivers behind the rise.

US outlook

Beef demand in the US is in excellent shape. Retailers will be promoting beef heavily in the coming months due to the ‘grilling season’, which will likely drive further demand. However, market participants will be eager for more aggressive marketing rates in order to avoid an oversupply of market-ready cattle.

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