Bright Forecast for Australian Beef

AUSTRALIA - Despite being faced with a number of short-term challenges - including high input costs, continued dry weather conditions in many areas and increased competition in some key export markets - the longer-term outlook is positive for the Australian cattle industry.
calendar icon 25 September 2008
clock icon 7 minute read

According to the Rabobank report, Australian beef – short-term pain, longer-term gain?, growth in global populations and incomes is expected to lead to an increase in world beef demand over the next decade. At the same time the cost of competitor meats is expected to rise, supporting higher beef and cattle prices.

"Increased incomes and population growth will support a 55 million tonne – 20 per cent rise – in global meat consumption from 2005 to 2015."
Rabobank report.

“A general rise in global meat prices, including beef, is needed to encourage growers to increase production in order to meet the growing world meat demand,” report author, Rabobank senior analyst Wendy Voss said.

However, the Australian beef industry still faces a number of challenges in the short-to-medium term.

Ms Voss said drought remains a key concern for many producers with restocker cattle prices rising and falling in response to seasonal conditions.

She said key export markets are also proving challenging for the Australian cattle industry. “Increased competition from US beef in North Asian markets, and a recent slow-down in buying from the Russia market has impacted demand for Australian beef exports in recent weeks,” Ms Voss said.

“However, we’re fortunate to have had a significant fall in the Australian dollar, which has eased some of the pressure on export returns. Together with some good rainfall in southern Australia and tightening supply this has supported cattle prices.”

Young cattle supply and prices linked to weather

Young cattle prices have fluctuated with changes in seasonal conditions over the past 18 months. Substantial and widespread rains from late 2007 to early 2008 saw turn-off slow and demand for restocker cattle rise as producers looked to expand their herds. “Prices responded quickly, rising by 26 per cent, the highest level since September 2006,” the report said.

Ms Voss said young cattle prices are expected to remain closely linked to weather conditions in 2008.

“After a reasonably dry winter throughout much of Australia, cattle prices in spring will depend on the level of rainfall received. This will be important both in terms of pasture and water availability, and in terms of production of feedgrains for use in the feedlotting sector,” she said.

Australian beef to face increased competition in North Asia

The ban on US beef imports in late 2003 by Japan and Korea due to the discovery of BSE (known as Mad-Cow Disease) has been one of the most significant factors to impact the Australian cattle industry over the past decade.

“With its largest beef competitor removed from the market, Australian export volumes and prices to Japan and Korean surged to record levels, accompanied by a jump in Australian cattle prices,” the report said.

Ms Voss said it came as no surprise that demand for Australian beef from the Korean market declined following the re-entry of US beef in the market in July, with importers and end users holding off from purchasing in expectation of market volatility and declining Australian beef prices.

“The majority of large-scale Korean retailers and food service companies are still taking a ‘wait and see’ approach, announcing that they will hold off from stocking US beef until negative consumer sentiment dies down. Despite the current consumer concern, we can expect US beef sales to increase significantly over the upcoming year” she said.

In Japan, US imports have remained limited to beef from cattle under 21 months of age. “While the US faces the current age restrictions in Japan we will see limited growth in sales of US beef into this market, and demand for Australian beef should remain strong. However, if the government eases its age restrictions competition from US beef will increase significantly” the report said.

Opportunities arise in “secondary markets”

While some key export markets are proving challenging, a number of so-called “secondary markets” have seen a surge in demand, which has provided support for Australian beef exporters and producers.

One of the stand-out markets for Australia has been Russia, which this year emerged as Australia’s fourth largest beef market. “Russia has been an important alternative market for Australian beef exporters,” Ms Voss said.

While Russia has provided great opportunities for Australia in 2008, the market does hold its own challenges. “Recently we have seen an easing in demand in Russia due to a backlog of Brazilian product, and a decline in the Russian dollar against the US dollar supporting higher US exports,” she said.

Longer-term – population and income growth to drive increased beef demand

The longer-term outlook for the Australian cattle industry is positive, with growth in both world population and incomes expected to drive higher meat consumption, including beef.

“As incomes in developing countries grow, consumption of meat rises as consumers move away from grain-based diets,” Ms Voss said.

The report says much of the world’s population growth is predicted to take place in Asia, providing a rapidly growing group of consumers located within close proximity to Australia.

“The Food and Agriculture Organisation (FAO) forecasts that increased incomes and population growth will support a 55 million tonne – 20 per cent rise – in global meat consumption from 2005 to 2015. The consumption of beef is forecast to grow by around 12 million tonnes – 18 per cent,” the report said.

Higher input costs to drive up meat prices

It is not only the Australian cattle sector facing the challenges of higher feed costs.

According to the report, the surge in grain prices is also having a direct impact on feedlotting in other countries, including major competitor beef producers such as the US.

“The US, which is the largest beef producing country in the world, has faced a dramatic rise in feedgrain prices, like US corn, driven by tight world stocks, strong demand from global markets for feed and food, and ethanol production,” the report said.

The increased demand for corn has resulted in a surge in prices from an average of USD113 per tonne in 2006 to nearly USD250 per tonne in May 2008. Ms Voss said this price rise has delivered a shock to a livestock industry which operated at average corn prices of USD91 per tonne between 997 and 2005. While prices have eased more recently, they still remain well above historical levels. These higher input costs are expected to drive beef prices higher in the US.

The price of competitor proteins, such as pork and chicken, are also rising or expected to rise in response to higher grain prices, both in Australia and in a number of overseas producing countries.

Ms Voss said an increase in competitor protein prices is important in allowing beef prices to rise while still remaining reasonably competitive. “For Australia the pork and poultry industry has also seen higher production costs, including grain. Increased prices for grain are now being passed onto consumers through higher retail prices,” she said.

Brazilian beef exports to grow – but at a slower pace

While many see Brazil – a major export competitor to Australia - as having unlimited capacity to expand beef production, cattle producers in Brazil have shown that if returns to investment decline, or fall behind those of other commodities, they may reduce their investment in the sector.

“This is what happened a few years ago and the resultant shift away from investment in cattle production is now being felt with tighter supply, which is contributing to the current high prices for Brazilian beef in the global market,” the report said.

Longer term Agra FNP, a leading Brazilian agribusiness consultancy firm, expects Brazilian beef to increase by one million tonnes over the next decade, reaching nearly three million tonnes by 2017.

“While still impressive, this actually represents slowdown in export growth compared to the last decade, when Brazilian beef exports surged from 200 thousand to 2.2 million tonnes,” Ms Voss said.


While drought has proved to be a major challenge over recent years, record beef prices in North Asian markets have supported cattle prices above historical levels. With these markets increasingly opening up to greater volumes of US beef, this will place additional pressure on the industry.

However a number of major competitors for beef, pork and poultry production around the world are also facing higher production costs and reduced profitability. At the same time, growing population is expected to drive increased demand for meat globally.

“Global meat prices in general are expected to rise in response to these cost-push and demandpull pressures.

“These price increases should soften the impact of increased US access to Japan and Korea in the short-to-medium term, and in the long run should lead to strengthening Australian beef and cattle prices,” the report concluded.

TheCattleSite News Desk

© 2000 - 2024 - Global Ag Media. All Rights Reserved | No part of this site may be reproduced without permission.