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Slide in Wagyu F1 prices puts pressure on supply chains

The US cattle market started the year on an uptrend due to tighter supplies, resulting in higher prices for all classes of cattle. Despite concerns about demand, better overall demand supported the market. Wholesale beef demand, although down compared to last year, remained the second highest in the last 20 years. The USDA quality grade improved, with a higher percentage of steers and heifers grading as USDA Prime and Choice. Canada experienced a decline in cattle supplies, pushing prices to record highs. Meanwhile, Mexico's cattle market showed a mixed picture, with ample production but relatively subdued domestic beef demand. US milk production saw growth in the first two months of the year, supported by an increase in the dairy herd and improved milk per cow gains. However, weekly dairy cow slaughter rates increased, potentially limiting significant herd expansion. Dairy product prices remained high, with the dairy products Consumer Price Index (CPI) well above prior-year levels. Despite some moderation in February, total dairy exports remained strong, particularly to Mexico. Global dairy product prices trended lower due to ample supply and sluggish demand. Initial estimates for corn planting intentions suggested a 4% increase compared to last year. However, weather changes during the planting season could impact actual acreage. Corn yield estimates varied, with weather being a major factor. Corn stocks were lower compared to the same period last year, indicating robust demand and the potential for basis strengthening. Corn exports declined, but outstanding sales showed increased interest in US corn, particularly due to challenges in Brazil. Overall, corn prices will be influenced by yield and demand factors throughout the marketing year.

The Australian beef industry is facing challenges in attracting labour, which may impact cattle volume purchases and prices. However, there may be a degree of restocking activity in the market due to a reasonable weather forecast and increasing confidence among producers. While beef exports have been sluggish, there are optimistic signs for later in the year, particularly in the China and US markets. The Australian cattle herd is forecast to reach its highest level since 2014 in 2023, driven by a strong growth rate. However, prices may not rise significantly due to the struggle to attract labour in the meat processing sector. Global dairy supply is growing steadily, with strong production from the European Union. Global prices have dropped significantly from their peaks in March 2022, and the Global Dairy Trade (GDT) auctions have seen a series of price declines. Weak consumer demand in China and concerns over future consumption have contributed to the decline in global dairy prices. Domestically, Australian milk production continues to fall, impacting the export surplus and putting pressure on margins for export-oriented processing. While higher domestic prices maintain profitability for producers, volatility and production costs are high. The Australian cropping sector is potentially poised to see its third record harvest in a row, with the overall winter crop and production volumes for wheat, canola, and lentils potentially reaching record levels. However, heavy rains in late 2022 will strongly impact crop volumes from New South Wales, which are likely to be markedly down. Pulse crops are also expected to see reduced volumes, partly due to reduced plantings as growers focus on major crops. Prices for major crops are down from last year's highs, and the reasonable production forecasts from the Northern Hemisphere are expected to limit substantial price increases. Australian grain growers may face high crop input costs but are still likely to plant a large crop given the reasonable weather outlook.

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The beef market has experienced some stabilisation, with current prices expected to be sustainable for all operators in the supply chain. Feeder steers and young restocking cattle, however, have continued to drop in price. Good rainfall in Queensland has the potential to stimulate market activity and support prices. Cattle slaughter volumes have shown mixed results across different regions, with increases in some areas and declines in others. Additionally, exports to major markets, including China, have seen an increase, but live cattle exports to Indonesia have decreased significantly. The recent atypical BSE case in Brazil, leading to a suspension of beef trade with China, may have a positive influence on Australia's beef market but is not expected to have a significant impact. Dairy commodity markets have experienced a sustained downturn, with spot prices falling between 20% to 40% since their peak in Q2 2022. Milk production growth outside of Australia, particularly in the Northern Hemisphere, is gaining momentum, which may have implications for global dairy markets. Adverse weather conditions and industry consolidation have affected milk production, although the rate of decline has slowed in some regions. Dairy farmers are entering autumn with good feed reserves, but issues around fodder availability and elevated feed costs persist. Consumers' purchasing behaviour is shifting due to rising dairy product prices, and while dairy consumption remains resilient, volume declines are being observed. The Bureau of Meteorology's rainfall forecast indicates a potential shift from oversupply to a dry year, which may impact grain markets. The Black Sea Grain deal between Ukraine and Russia, up for renewal in mid-March, could have notable upside if not renewed. Seasonal conditions in the US have improved for central growing regions, while the ongoing Ukraine-Russia conflict and crop performance in Argentina may also affect grain demand and supply. Fertiliser prices have been declining, but the market remains uncertain about price behaviour after the spring buying period. The recent currency dip has not sufficiently countered international grain prices in AUD terms.

The weather forecast predicts wild weather in New Zealand, including an increase in tropical cyclones, which could bring more rain and strong winds to certain regions. This could lead to higher humidity and animal health risks for livestock farmers, including fly strike, worm burden, and facial eczema. Additionally, global beef prices are expected to be influenced by tightening supplies and weakening consumer demand. While beef production is expected to increase in Australia and Brazil, US production is forecasted to decline, resulting in tight global beef availability. New Zealand may see a lift in US import demand for beef towards the end of 2023 and into 2024. New Zealand's dairy industry is experiencing improved milk supplies at the beginning of 2023, with better grass growth compared to the previous year. However, farmgate milk price forecasts have faced downward pressure, and commodity prices have been losing momentum since mid-2022. Chinese importers are more cautious with purchases, and there is demand rationing in all markets. While the start of the new season may see some improved pricing, farmgate milk price forecasts are likely to be less optimistic than the previous season. The supply and demand balance for fertilisers have been shifting, impacting grain production. The fertilisers market experienced hikes due to COVID-related disruptions and geopolitical tensions, but with increasing stocks and reduced international prices, the outlook for 2023 is more favourable. However, the ongoing war between Ukraine and Russia and energy crisis may affect fertilizer application rates and overall grain production. The Baltic Panamax index, a proxy for grain bulk freight, has declined, mainly due to soft Chinese demand and Brazilian rainfall. There may be a soft rebound in the grain market in the second quarter of 2023 as temporary challenges resolve.

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