Australian Cattle Charge Pauses for Thought

AUSTRALIA - Against a backdrop of buoyant global meat prices, the Australian cattle and beef industries should be gearing up for expansion, but a number of factors have put this on hold.
calendar icon 12 August 2008
clock icon 5 minute read
Meat & Livestock Australia

The high Australian dollar, US beef’s return to North Asian markets, ongoing drought and rapidly rising farm costs are now expected to keep the cattle herd and beef supply steady over the short term, according to Meat & Livestock Australia’s 2008 Cattle industry projections mid-year update, released today.

Photo: Meat and Livestock Australia

In launching the report, MLA’s chief market analyst Peter Weeks said that while there is reason to be optimistic over the medium to longer term, the coming 12 months could remain challenging for large segments of the cattle and beef industries.

“Returns to medium to large northern cattle producers not in drought are expected to remain favourable, while many medium to small southern cattle producers suffering drought and rising costs will face further losses,” Mr Weeks said.

“If the drought recedes, we could see a more general recovery in grazier and feedlot incomes, to attractive levels, driven initially by improved on-farm productivity and the elimination of drought related costs, and eventually also by beef price rises.”

“The promise of a good winter grain harvest, following on from the bumper summer sorghum crop, is expected to provide partial cost relief for producers and lot feeders from spring. However, with global grain prices remaining high, the shift from grainfed to grassfed beef production seems likely to persist over the next few years.”

Nationally, the herd is forecast to remain at around 28 million head until June 2009, before commencing a slow build up to 29.5 million in 2012. The extension of the long southern drought into a seventh winter, and competition from cropping, is expected to see a further fall in southern cattle herds, offset by a recovery in Queensland herds following flood rains early in the year and some winter follow up rain.

Australian beef and veal production is now forecast to rise one percent in 2008, due to the ongoing drought-related kills, and fall three percent in 2009, to 2.14 million tonnes, with lower grainfed beef and cow beef output than recent years. Quality grassfed beef output should be at least maintained, particularly in the second half of this year, as a result of improved pastures and the availability of steers and heifers left in the paddock due to the sharp cutback in feedlot placements.

Cattle prices seem likely to remain firm over the short term, with expected rises for breeding stock and young cattle likely to offset any falls to export steers and heifers, caused by the return of US beef to North Asia and the high A$.

"If the drought recedes, we could see a more general recovery in grazier and feedlot incomes"
MLA’s chief market analyst Peter Weeks

“The short, medium and long term global beef market prospects have strengthened significantly over the past two years, due to the impact of higher grain costs on all meat prices (partly due to ethanol production), growing meat import demand in Asia and Europe (due to continuing economic growth and food price inflation), the emergence of Russia as a major Australian market, further delays in US herd rebuilding and a sharp rise in South American beef prices,” Mr Weeks said.

“The Australian industry has been fortunate this year to have the fall in demand from our traditional large and medium markets of Japan, Korea, Taiwan, the US and Canada largely offset by a dramatic lift in buying from Russia and South Asia.”

With these emerging markets taking frozen manufacturing beef and cheaper cuts, the global market for these products has been buoyant.

This is related to strong economic and meat demand growth in these regions and an easing in competition from South American suppliers. Australian frozen manufacturing beef and cheaper cuts can now match Brazilian prices in many overseas markets.

While shipments to Russia are expected to ease over the second half of the year and into 2009, it is now forecast to take 90,000 tonnes of Australian beef in 2008 – compared to only 5,000 tonnes last year. Russia could consolidate as a major market for Australian product over the medium to longer term, depending on the extent of competition from South America.

Overall, Australian beef exports are forecast to rise just one percent in 2008, to 950,000 tonnes (shipped weight), before falling five percent in 2009 (to 900,000 tonnes), due to lower Australian supply, increased US competition in Japan and Korea and a high A$.

In North Asia, the main impact of US beef’s return has been delayed until the second half of 2008 for Korea, and into 2009 for Japan, if protocols are eased at that time. However, Australia is expected to retain much of the market share gained during the US’s absence, with a seven percent fall in exports forecast for Japan in 2009 and a 11 percent fall to Korea – still 18 percent and 93 percent above 2003 exports, respectively.

After a decade of impressive growth in demand for beef, the domestic market is likely to stabilise in 2008 and 2009, with cuts in household spending impacting on sales of dearer retail beef cuts and on custom through the mid-level foodservice sector, as consumers shift towards cheaper cuts and meats, eat at home more and opt for cheaper fast food and Asian cuisine restaurants when dining out.

However, domestic beef consumption is expected to be supported at around 770,000 tonnes by an anticipated fall in its retail price relative to other meats and growth in the fast food sector.

In addition to buoyant Indonesian and Middle East markets, the Australian live export trade has been boosted by the offloading of large numbers of young cattle from drought-affected Northern Territory properties, resulting in a forecast 11 percent rise in total shipments for 2008, to 800,000 head. However, Territory supplies are expected to tighten temporarily from late 2008, causing a 2.5 percent fall in live cattle exports in 2009, despite continued strong demand.

The medium term is expected to be characterised by a steady expansion in the Australian cattle herd, beef and veal production, beef and cattle exports and domestic consumption, enticed by continued growth in global demand for beef and, hopefully, improved seasons and a falling Australian dollar.

“Providing we jump the current short term hurdles posed by the A$, the drought, rising costs and the US return smoothly, I would expect the Australian cattle industry to be in a prime position to benefit from the anticipated growth in global beef demand over the medium to longer term.” Mr Weeks said.

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