Beef prices are at record highs and these ASX stocks could benefit
Food & Agriculture
Food & Agriculture
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Heavy demand for beef and lower supply is resulting in record high prices – could it benefit ASX stocks in this trade?
A report by agribusiness bank Rabobank released yesterday shows beef prices are rising in many regions including in Australia.
Young cattle prices rose 30 per cent in the 12 months to February 2020 and despite COVID-19 grew another 20 per cent in the 12 months after that.
Senior animal proteins analyst Angus Gidley-Baird credits positive seasonal conditions, low supply and intense buying competition by producers looking to restock properties.
“While lower volumes and higher prices make competing in the global market more difficult, the tight market situation is working in Australia’s favour and creating less resistance to our high prices,” he said.
“We believe that current cattle prices in Australia will ease as cattle numbers increase and producer demand dissipates. However, as the supply chain overcomes the disruption here and consumers adjust their price expectations, we believe the market will adjust and a new baseline will be established.”
However beef exports were low, reflecting lower production levels – down 22 per cent from 12 months ago.
While China was still a buyer of Australian beef, its share fell from 24 per cent to 17 per cent and America’s did too from 20 per cent to 15 per cent.
Japan and South Korea went the other way in the first four months of 2021.
While China has been seeking to produce domestically, it has not been able to keep up with local growth in consumption and adverse conditions in Brazil have meant it is insufficient to satisfy demand.
There are three ASX stocks in the beef trade and two of them are benefiting.
One is Australian Agricultural Company (ASX:AAC) which runs beef farms.
The company delivered an operating profit for the first half of FY21 of $24.4 million post-JobKeeper while $17.7 million pre-JobKeeper – both comparing favourably with the $15.2 million in the prior corresponding period.
The company reported higher beef prices both because of lower volumes available but also a rationalisation of its brand portfolio.
Then there’s Elders (ASX:ELD) which is a diversified agribusiness but helps beef farmers access global markets and technical advice as well as a feed and processing business with a cattle feedlot in New South Walas and a supply chain in Indonesia.
Across its broader business it reported a 22 per cent jump in revenues and 31 per cent increase in statutory profit after tax.
It credited several reasons for its performance but one was higher livestock prices, including beef.
The third ASX beef stock, Wellard (ASX:WLD), is a pure-play exporter and it has had difficult times in recent months.
Its revenue in the first half of FY21 halved from the prior corresponding period thanks to depreciation but it also suffered from New Zealand temporarily suspending the cattle export trade after the Gulf Livestock 1 disaster.
Things improved somewhat in the first quarter of this calendar year, making five medium and long haul voyages, but it noted COVID-19 restrictions continued to be a logistical challenge.