Victoria O’Sullivan

Eastern states young cattle markets have posted solid highs in the first quarter of 2020, driven by demand for restocker cattle.

NAB Senior Economist Phin Ziebell said the speed of the cattle restocker market rally in February was ‘simply without precedent in modern Australian cattle market history’.

The strength in the restocker market came off the back of good rains following a crippling drought in 2019.

“The cause of this rally rested almost entirely with very good rainfall across much – but not all –of eastern Australia in January and February,” he said in NAB Rural Commodities Wrap and NAB In Focus: Cattle Market.

“This put a rocket under the restocker market at a time where good stock had been hard to find on account of protracted drought.”

Ziebell said finished cattle prices had been good for some time, reflecting difficulty sourcing quality stock, but also on account of very strong export market performance.

The impact of African Swine Fever on Chinese pig meat saw Chinese consumers turn to Australian beef exports for protein in the second half of 2019, ensuring solid export demand. Australia became the world’s biggest beef exporter by value in 2019.

He said the main pressure for beef over the coming months will be the competing forces of strong restocker interest, tempered by challenging global market fundamentals brought about by Covid-19.

“Australia has rightly set its sights on value-added premium product in the sector, but with restaurants across much of the world closed and many consumers losing their jobs, buying premium product will be a tough ask for many global consumers,” he said.

“On balance, domestic restocker pressure will pull prices away from rough global fundamentals. If the next 12 months can proceed as a restocking phase that will go some way to reducing this tension.”

But he says the true impacts of the pandemic on global trade are yet to be realised.

“Global supply chains are under massive pressure [and] it is hard to predict what will happen to supply chains in the coming months. The global economy is in a sharp downturn. Demand for premium products could well suffer as consumers simply don’t have cash to spend.

“China is emerging from a very serious shutdown and is likely to see very significant impacts in economic growth. You’ve got Japan and South Korea — both countries handled the coronavirus pretty well but [there are] still major social distancing measures [such as] people not going out to restaurants. The serious and emerging concern of coronavirus in the United States will also be important for the flow of Australian exports.”

Domestically, no real disruptions have been seen in Australian food supply outside of panic buying and hoarding from Australian supermarkets. Ziebell said access to labour and risk of outbreak remains a major concern for labour-intensive parts of agriculture, such as horticulture, dairy processing and abattoirs.

In his April commentary, Ziebell noted seasonal conditions as looking good across Australia, with the three-month Bureau of Meteorology (BoM) outlook pointing to well-above-average rainfall for the next three months.

He said the performance of Australian agriculture was a positive note amongst a sea of negative news brought about by Covid-19. Underpinned by the booming livestock markets, the NAB Rural Commodities Index had a record month in February – rising 8.5% month-on-month, then gaining a further 5.8% in March.

“Commodity prices overall are going up, the AUD is lower, and we’re actually looking at a pretty good season so far after a tough one last year,” said Ziebell. “If you’re a farmer, you’d be pretty happy with the way things are, I think, at the moment.”