THE alarming rise in the value of the Australian dollar, weak overseas demand and widespread dry conditions have combined to force a major glut of beef onto the domestic market in the past few weeks.
The dollar hit US93c recently and economists predict it will remain close to parity with the greenback until well into next year.
The big difference between circumstances now and when the Australian dollar last hit a 25-year high in July last year is export demand for beef at that point was particularly strong.
Processors today are struggling to find export customers for cuts at realistic prices, leaving them with no alternative but to divert beef onto the domestic market in increasing quantities.
As has been seen in the past, Australia's modest population of 21m struggles to soak up excess beef when the trading environment overseas turns sour, unless it is sold at giveaway prices.
Australian Meat Industry Council chairman Terry Nolan said the situation had worsened in the past fortnight, as the Australian dollar had continued to climb.
The current trading conditions were probably as bad as he had seen since the 1974-78 beef slump, and a passage during 1996 when demand dropped dramatically in Japan. Good quality 100-day grainfed export rumps have been wholesaling recently for as low as $4.50/kg.
"Putting those rumps into the trade at that price means the processor involved was probably losing at least $100/head on those animals," Mr Nolan said.
There was also a great deal of volatility in the domestic wholesale market at present, with end-users paying from $4.50 to $10/kg for the same rumps.
"Processors that thought they had a parcel of meat sold overseas are suddenly finding the deal has fallen over, and are having to tip the consignment into the local market - either because it already has four weeks' ageing on it, or because they need the cash."
While the trend this year among budget-conscious consumers hit by the economy had been to trade down into cheaper cuts of meat, that may now be reversing.
The abundance of cheap, often good quality export product was motivating consumers to invest in better cuts again.
Some larger budget-type butchers had been engaging in big price discounting using diverted export beef, which, while helping clear the surplus, was not doing the beef producer or the broader industry any good, Mr Nolan said.
"It can take months and months to build the retail value in the product to higher levels, but only days to destroy it," he said.
AMIC National retail chairman Kerry Melrose agreed there was a flood of beef being diverted onto the domestic market at present, at very low rates.
Much of it was $1 to $1.50/kg cheaper at wholesale than it was six weeks ago - a massive decline.
While there was some evidence of retail price-cutting among bulk outlets, many retailers were holding prices to try to bolster their margins, because overall trade volumes had been down for some time.
That was only likely to last for so long, however, before more widespread discounting became apparent.
"Unfortunately, price premiums on MSA beef are also being eroded significantly due to the sheer abundance of reasonable quality export beef out there," Mr Melrose said.
If the fundamentals currently driving the market did not change, there could be a serious decline in cattle price ahead, he said.
MLA senior analyst Peter Weeks did not necessarily share this view, however, saying to a large extent that cattle price correction had already occurred.
"That's why we have seen this unusual fall in cattle price over the past two to three months. It's already factored in," he said.
If producers now started holding cattle back due to lower prices and feedlot activity eased, there was likely to be some stabilisation of the market - albeit at a lower level.
"It simply means the whole industry activity has eased, which is not good," he said.
While currently the economies in the US, Japan and Korea were stagnant, all three were forecast to start growing again by next year.
"Hopefully that will deliver some pick-up in demand, but that's really six months away, rather than a month or two."
On the supply side, the fall in US beef production had been delayed due to dairy liquidation, and Argentina was also liquidating its cow herd in a big way.
But production in the US, Argentina and Brazil next year is predicted to fall, which could provide some relief in terms of demand for Australian beef.
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