abare.gov.au - Australian commodities – December quarter . volume 15 . number 4 2008

Beef and veal

Sally Fletcher

The Australian weighted average saleyard price of cattle is forecast to increase by 5 per cent in 2008-09 to average 300 cents a kilogram (dressed weight). This forecast is underpinned by an assumed depreciation of the Australian dollar and continued low cattle turn-off. Cow prices are forecast to rise by more than other cattle prices as producers begin to rebuild herds, and cow and heifer turn-off falls. However, the demand for beef, particularly for higher-value cuts, is expected to be dampened by the current global financial crisis which will put some downward pressure on prices. The cattle prices most affected by lower demand in export markets will be those for heavy steers destined for export markets, such as Jap ox.

Since the last assessment of the cattle market for the September edition of Australian commodities, two significant factors have changed and are likely to have opposing effects on cattle prices for the remainder of the year. The assumed depreciation of the Australian dollar will make Australian beef more competitive in buyers’ currencies and should put upward pressure on saleyard prices. However, negative or slower economic growth is forecast for many countries, which is likely to lower the demand for beef as consumers substitute toward cheaper protein sources. This will place downward pressure on saleyard prices.

Cattle slaughterings to fall slightly

Total cattle slaughterings in Australia fell by 3 per cent in 2007-08 to 8.8 million. However, cow and heifer slaughter increased in the southern states, with producers delaying herd rebuilding as seasonal conditions remained poor in many areas. Australian slaughter data are not disaggregated enough to be able to determine what proportion of female cattle slaughter was dairy cows as opposed to beef cows. However, dairy cow numbers in Australia declined by 10 per cent in 2007-08 while the number of beef cows and heifers increased by 6 per cent. This suggests dairy cattle made a significant contribution to the increase in female cattle slaughter in the southern states in 2007-08.

The increase in beef cow and heifer numbers should enable a quicker recovery in the beef cattle herd, which is forecast to increase by 1 per cent to 25.5 million by June 2009. Producers are expected to begin rebuilding beef cattle herds by further reducing cow and heifer slaughter. Reflecting this, total slaughterings are forecast to fall slightly in 2008-09 to around 8.7 million.

Herd rebuilding is dependant on favourable seasonal conditions. Many regions of Queensland and northern New South Wales have had above average rainfall over the past few months and producers have already begun holding onto cows and heifers to rebuild herds. While most of southern Australia also received good rainfall in November, if this is followed by a dry summer, turn-off is likely to be higher than expected, resulting in herd rebuilding possibly being delayed.

Increased slaughter weights to offset lower slaughterings

Any downward effect on beef production resulting from the decline in slaughterings is expected to be offset by an increase in average slaughter weights in 2008-09. A greater number of cattle are expected to be finished on grain given the potential downgrading of grain quality resulting from untimely November rainfall in most states and the associated decline in feed grain prices. In addition, the quantity and quality of pasture is expected to be better than in the past several years because of improved seasonal conditions. As a result, beef and veal production is forecast to remain at around 2.15 million tonnes in 2008-09.

Australian beef exports

Australian beef and veal exports are forecast to increase to 940 000 tonnes in 2008-09. This largely reflects strong demand in small and emerging export markets for the first few months of 2008-09 and the expected impact of the recent depreciation of the Australian dollar.

Total export volumes for July to November 2008 were 5 per cent above the previous year, reflecting much larger shipments to the Russian Federation and a number of smaller markets such as the Philippines and the Middle East. However, combined exports to the three major markets – the Republic of Korea, Japan and the United States – were down nearly 9 per cent compared with 2007. Exports for the remainder of the year are expected to be below 2007-08 volumes, as the current global economic crisis reduces the demand for beef in export markets.

Beef and veal outlook

2006-07

2007-08

2008-09

% change

Cattle numbers

million

28.0

27.8

28.0

0.7

– beef

million

25.4

25.3

25.5

0.8

Slaughterings

’000

9 081

8 799

8 700

– 1.1

Production

2 226

2 155

2 150

– 0.2

Exports (shipped weight)

– to United States

303

240

255

6.3

– to Japan

403

365

345

– 5.5

– to Korea, Rep. of

157

146

130

– 11.0

– total

974

930

940

1.1

– value

A$m

4 634

4 190

4 300

2.6

Live cattle

’000

638

713

710

– 0.4

Price

– saleyard

Ac/kg

292

286

300

4.9

– US import

USc/kg

282

303

330

8.9

– Japan import

USc/kg

477

510

475

– 6.9

f ABARE forecast.

Competition from US beef to increase in the Republic of Korea

Australian beef exports to the Republic of Korea are forecast to fall by 11 per cent in 2008-09 to 130 000 tonnes, reflecting lower demand for Australian beef as competition from US beef increases. Since a new Korean import protocol on US beef was implemented in June 2008, imports of US beef have increased. Over the same period, imports of Australian beef have fallen. From June to September 2008, the volume of imports of Australian beef were 23 per cent below volumes in the corresponding four months of 2007.

Despite the increase in imports of US beef, major retailers refused to sell it until recently, and as a result, stocks of US beef in the Republic of Korea are estimated to have increased. However, on 25 November 2008, three of the largest retailers in the Republic of Korea said they would begin stocking US beef again, which is expected to lower the demand for Australian beef. However, the extent of the decline could be mitigated by the depreciation of the Australian dollar and continued uncertainty surrounding the acceptance of US beef by Korean consumers.

Demand for Australian beef in Japan to fall

Australian beef exports to Japan for the first five months of 2008-09 were 3 per cent lower than for the corresponding months of the previous year. Exports for the remainder of the year are forecast to fall further as economic weakness in Japan leads to reduced demand for many beef cuts.

Another factor contributing to forecast lower exports to Japan is the expected increase in competition from US beef. Even though Japanese protocols on US beef imports remain unchanged, the amount of US beef from age-verified cattle under 21 months is increasing, enabling greater exports to Japan.

Australian beef exports to Japan are forecast to fall by 6 per cent in 2008-09 to 345 000 tonnes. However, the depreciation of the Australian dollar against the Yen is expected to make Australian beef less expensive in Japan, offsetting some of the effects of lower demand.

The landed price for Australian grass-fed fullsets in Japan has been declining in US dollar terms since August. In Australian dollar terms, however, the depreciating Australian exchange rate has led to higher fob prices in Australia. For 2008-09 as a whole, the landed price of Australian beef in Japan is forecast to average 7 per cent lower than in 2007-08, at around 475 US cents a kilogram.

Higher beef exports to the United States

Australian beef exports to the United States are forecast to increase by 6 per cent in 2008-09 to 255 000 tonnes, reflecting the assumed depreciation of the Australian dollar and continued strong demand for low value manufacturing beef.

Australian beef export volumes to the United States remained low from November 2007 through to August 2008 as the value of the Australian dollar appreciated, leading to an increase in the landed price of Australian beef. However, since August, volumes have begun to increase as the landed price of Australian beef has fallen. The volume of Australian beef exported to the United States is expected to remain above 2007-08 volumes for the remainder of the year.

The economic downturn in the United States has also had an impact on consumers’ demand for beef. In the USDA November Livestock, Dairy and Poultry Outlook it was noted at-home consumption of less expensive beef cuts and ground meat products is increasing, while consumption of higher-valued cuts and away-from-home consumption is falling. As the majority of Australian beef exported to the United States is manufacturing beef, the US recession is not expected to have a large downward impact on the demand for Australian beef.

Demand for Australian live cattle exports to remain strong

Over the past eight years the proportion of Australian live cattle shipped to Indonesia has increased. Indonesia accounted for more than 76 per cent of Australian live cattle exports in 2007-08. The demand for live cattle in Indonesia has increased because of the high rate of per person income growth which, in turn, has resulted in greater demand for beef. With limited ability to increase domestic herds in Indonesia, more cattle have been imported live and fattened in feedlots to meet the increased demand.

Economic growth in Indonesia and other south-east Asian countries, such as Malaysia and the Philippines, is forecast to slow but remain positive. Because of this, demand for beef, and therefore live exports, is expected to remain strong. However, likely limitations to the supply of suitable cattle in 2008-09 mean Australian live cattle exports are forecast to remain at similar levels to 2007-08, at around 710 000 head. The supply of young steers for live export is expected to be constrained because of lower numbers following the high turn-off in 2007-08. The supply of heifers is expected to be constrained as producers retain female cattle to rebuild herds.