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The one ag market soaring to record highs - far outperforming gold


For anyone doubting the claims of agricultural commodities as defensive assets against the likes of coronavirus, or tumbling oil prices, just look at Australian cattle.


Australian cattle prices, as measured by the benchmark eastern young cattle indicator (EYCI), rose by 1.4% on Monday to a record high of 754.75 Australian dollar cents per kilogramme, even as many other markets were weighed by the oil price collapse.


Nor was this a one-off.


The index has proved immune to the coronavirus outbreak, rising by 44% since January 20, the last day before Agrimoney records show a sharp rise in mentions of the disease.


And it was rising even before then, with 2020 gains now at 57% - a surge which “is simply without precedent in modern Australian cattle market history, according to National Australia Bank.


The gain is more than five times that in gold, whose safe haven qualities have boosted its popularity in these troubled times. Gold prices were up some 10% for the year as of Monday’s close.


‘Staggering growth’

In fact, Australian cattle values have found some support from disease factors, in terms of the damage to China’s hog herd from African swine fever, so boosting the country’s demand for imported meats.


Australian beef shipments, while remaining behind Brazil’s in volume terms on the world exporters’ table, rose by 17% to top rank in value terms to $7.5bn (Aus$10.8bn), according to the Meat and Livestock Australia industry group.


“China, who as a single destination for Australian beef, contributed $1.85bn for the year, up a staggering $883m from 2018,” the group said.


Trade on this route remained strong to start 2020, with Australia’s exports to China in January up 73% year on year by volume to 21,026 tonnes, driving Australia’s overall shipments up 17% to 79,221 tonnes.


‘Rocket under the market’

Furthermore, the buoyancy in Australian cattle prices has been supercharged by the return of rains, which, in boosting pasture condition, have fired the starting gun for a herd rebuilding programme.


The rainfall “has put a rocket under the restocker market at a time where good stock have been hard to find on account of protracted drought,” National Australia Bank said.


Prolonged drought conditions had encouraged producers to run down cattle inventories, sending cow slaughter numbers to a record high last year, augmenting beef supplies and enabling bumper exports.


The herd size has fallen to “the lowest level in more than three decades”, according to a briefing released overnight from the US Department of Agriculture’s Canberra bureau.


However, “plentiful rainfall in January and February in some areas after years of dryness has already boosted some farmer confidence and caused a sharp rise in cattle prices”, the bureau added.


‘Very substantial risks’

Nonetheless, the bureau was cautious over the trend, saying that “the timing and extend of herd rebuilding will be highly dependent on further rains boosting farmer’s confidence in sufficient availability of feed for their cattle”.


National Australia Bank cautioned of “two very substantial risks” to the cattle price rally, the first being that rainfall levels drop off again.


“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”, NAB agribusiness economist, Phin Ziebell said.


‘Expected to drop dramatically’

The second is that coronavirus may bite the market after all, in weakening demand for Australian beef exports in China, and elsewhere in Asia, besides the key US market.


Rabobank noted last week that “with China taking 27% of [Australian] beef exports in January, the reduced foodservice trade in China and the problems with transport associated with coronavirus will have a significant impact on Australia’s beef trade in February and March.


“Sales to China are expected to drop dramatically in the first quarter, be down in the second quarter, and start to recover in the third quarter, if the virus can be contained in the short term.


Mr Ziebell said that “beyond China, South Korea and Japan are dealing with major coronavirus outbreaks, and US preparedness to manage the virus remains unclear.


“The impact of coronavirus on premium protein demand across east and South East Asia could pose challenges for the market.”


“If anything, there is more downside than upside for the EYCI at present.”

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