abare.gov.au - Australian commodities – June quarter . volume 15 . number 2 2008

Beef and veal

The Australian weighted average saleyard price of cattle is forecast to increase by 3 per cent in 2008-09 to 294 cents a kilogram (dressed weight). The forecast increase in prices reflects a decline in slaughterings, particularly of cows and heifers, and an increase in re-stocker demand as producers begin to rebuild herds, assuming a return to average seasonal conditions. An increase in the quality of cattle being turned off is also expected to contribute to the forecast higher saleyard prices in 2008-09.

However, a forecast fall in the demand for Australian beef in the Republic of Korea, and possibly Japan, as competition from US beef increases, is expected to largely offset the upward pressure on saleyard prices. The assumed high value of the Australian dollar against the US dollar in 2008-09 is expected to constrain growth in demand for Australian beef in other export markets, also placing downward pressure on saleyard prices.

There is considerable uncertainty surrounding some factors that will influence saleyard prices in 2008-09. For example, if seasonal conditions do not improve in most regions, and slaughterings remain high, saleyard prices could be markedly lower than currently forecast. However, prices could be higher than currently forecast if the United States does not gain full access to the Japanese market during 2008-09, or if the implementation of new Korean protocols on US beef imports are further delayed. In this case, the demand for Australian beef in these two major export markets would remain strong, placing upward pressure on export prices and hence domestic saleyard prices.

Australian beef production to fall slightly in 2008-09

Total cattle slaughterings in 2007-08 are estimated to have been 3 per cent lower than in 2006-07, at 8.8 million. Most of this decline is in slaughterings of steers, bulls and bullocks. This reflects fewer cattle being turned off from feedlots and an increase in cattle being exported live. However, female cattle slaughterings remained high in 2007-08, as seasonal conditions in many regions remained relatively poor and producers deferred herd rebuilding. This is particularly the case in many regions in southern Australia.

Assuming an improvement in seasonal conditions, total cattle slaughterings are forecast to fall further in 2008-09 to 8.7 million as producers retain cows and heifers to rebuild herds. Reflecting the overall decline in slaughterings, beef and veal production is forecast to fall by 1 per cent to around 2.1 million tonnes in 2008-09.

In response to reduced production and lower demand for Australian beef in key export markets, Australian beef exports are forecast to fall by 3 per cent in 2008-09 to 900 000 tonnes. The value of beef exports in 2008-09 is forecast to also fall by 3 per cent to $4.1 billion.

Uncertainty over beef agreement between Korea and the United States

Uncertainty over beef agreement between the Republic of Korea and the United States

An agreement relaxing the Republic of Korea’s import protocols on US beef was reached in April 2008. This agreement is to replace the standards set in January 2006 which limit Korean imports of US beef to only boneless beef from cattle aged 30 months or younger. However, there have been delays in implementing the new protocols.

On 18 April 2008, the Republic of Korea and the United States reached an agreement to allow all US beef products from cattle of all ages to enter the Korean market. This is a two phase agreement with bone-in US beef from cattle 30 months of age or less allowed in the first phase. Under the second phase, contingent on the United States’ publication of an enhanced feed rule, US beef from cattle older than 30 months of age was to be accepted. The amended feed rule, which expanded the list of prohibited materials that could be fed to cattle and other animals, was published the week after the agreement was reached.

Quarantine inspections of US beef were originally scheduled to resume on 15 May 2008, but this was delayed in an effort to calm public fears in the Republic of Korea about the safety of US beef. Since then there have been numerous protests from producers and consumers about the agreement on US beef imports, and the implementation of the new protocol has been delayed further. There has been particular concern about removing the 30 month age restriction and further discussions about this part of the agreement are now taking place.

Beef and veal outlook

2006

2007

2008-09

% change

Cattle numbers

million

28.0

28.1

28.2

0.4

– beef

million

25.4

25.5

25.6

0.4

Slaughterings

’000

9 081

8 800

8 700

– 1.1

Production

2 226

2 160

2 135

– 1.2

Exports (shipped weight)

– to United States

303

242

245

1.2

– to Japan

403

365

350

– 4.1

– to Korea, Rep. of

157

146

125

– 14.4

– total

974

930

900

– 3.2

– value

A$m

4 634

4 160

4 080

– 1.9

Live cattle

’000

638

700

680

– 2.9

Price

– saleyard

Ac/kg

292

285

294

3.2

– US import

USc/kg

282

300

316

5.3

– Japan import

USc/kg

477

510

520

2.0

f ABARE forecast. s ABARE estimate.

If the first phase of the agreement allowing bone-in US beef product to enter the Korean market were to go ahead, Australian beef exports to the Republic of Korea could be adversely affected. In 2003, prior to the ban on US beef imports, nearly 60 per cent of imported US beef was bone-in products (mainly rib cuts), which are preferred cuts in the Republic of Korea. Since the ban on US beef, Australia has been unable to supply large quantities of the preferred bone-in rib cuts. As a result, Korean consumers and retailers have switched to using pork and other cuts of beef as substitutes. When US bone-in product is again available in the Republic of Korea, it is likely the demand for Australian beef would be adversely affected to some degree.

These forecasts reflect the assumption that an easing of import restrictions on US beef imports in the Korean market will occur in mid to late 2008. Under this assumption, imports of US beef into the Republic of Korea are forecast to increase in 2008-09. The increase in imports of US beef is expected to lead to lower demand for Australian beef in the Republic of Korea. Reflecting this assumed development, exports of Australian beef to the Republic of Korea are forecast to fall by 14 per cent to 125 000 tonnes.
Prior to the discovery of the BSE (bovine spongiform encephalopathy or ‘mad cow disease’) case in the United States in December 2003, more than 60 per cent of Korean beef imports were sourced from the United States. Even with an expected increase in imports of US beef in 2008-09, imports of Australian beef are likely to remain well above 2003 levels, as it will take time for US beef to be imported and accepted by retailers and consumers.

Given the recent protests in the Republic of Korea about the agreement on US beef imports, there is considerable uncertainty about consumer acceptance of US beef in the Republic of Korea even if the import ban is lifted. If there is low acceptance of US beef by Korean consumers and retailers, the adverse effect on Australian beef exports to the Republic of Korea could be significantly less than currently forecast.

Lower volume of beef exports to Japan in 2008-09

A strong Australian dollar, higher domestic feed grain prices and the associated decline in the number of cattle on feed in Australia over the past year, has led to lower exports of beef to Japan. In the first 11 months of 2007-08, Australian total beef exports to Japan declined year on year by 10 per cent, while Australian grainfed beef exports to Japan fell by 17 per cent. Throughout 2007-08 the landed price in Japan of Australian beef increased, with the price of grainfed beef rising relatively more than the price of grassfed beef.

There has been no change to the Japanese import protocols on US beef. Only US beef from cattle under 21 months of age is allowed to enter the Japanese market, which continues to constrain shipments of US beef to Japan. It is unclear at this stage when this restriction is likely to be relaxed. However, if the age limit on US beef is increased, it is expected there will be an adverse effect on the demand for Australian beef.

Australian beef exports to Japan are forecast to fall by 4 per cent in 2008-09, to 350 000 tonnes, assuming import restrictions on US beef are relaxed toward the end of 2008 or early 2009. The landed price of grassfed beef in Japan is forecast to increase by 2 per cent to 520 US cents a kilogram in 2008-09, reflecting lower Australian beef production.

Exports to the United States to remain largely unchanged

Australian beef exports to the United States are estimated to have declined in 2007-08 as cattle slaughter in the United States has been high and the US dollar has been depreciating against the Australian dollar. With cow slaughter in the United States expected to decline in 2008-09, the demand for imported manufacturing beef is likely to increase.

However, the production of manufacturing beef in Australia is expected to fall in 2008-09 as producers reduce cow slaughter for herd rebuilding. Australian beef exports to the United States are forecast to be 245 000 tonnes in 2008-09, largely unchanged from the previous year.

The increase in US import demand for manufacturing beef is expected to put upward pressure on the landed prices of Australian beef in the United States. In 2008-09, the US import price of Australian beef is forecast to increase by 5 per cent to 316 US cents a kilogram.

Live exports

Exports of live cattle are estimated to have increased by 10 per cent to 700 000 head in 2007-08, as the supply of suitable cattle from Australia increased and demand from Indonesia continued to grow. The increase in live exports also reflected the lower demand from Australian feedlots for cattle as a result of the high grain prices over the past year.

Live exports are forecast to decline slightly in 2008-09, reflecting the forecast increase in Australian cattle prices and an assumed high Australian dollar. Live cattle exports are forecast to fall by 3 per cent to 680 000 head.