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Agricultural Commodities: Beef & Veal

16 December 2011

Abare

The Australian weighted average saleyard price for beef cattle is forecast to remain relatively high in 2011–12 at an average of 326 cents a kilogram (dressed weight), according to the Australian Bureau of Agricultural and Resource Economics (ABARE) December Agricultural Commodities report.

Saleyard prices are expected to be supported by a combination of strong domestic restocker demand for young cattle, limited supplies because of low slaughter rates and increased demand from emerging markets, including the Russian Federation and those in the Middle East and South-East Asia.

Cattle numbers at 34-year high

The national cattle herd is forecast to increase by five per cent in 2011–12 to 30.2 million head. This growth in the herd is supported by assumed continuation of favourable seasonal conditions, which are expected to lead to good pasture growth and replenished water supplies. The forecast cattle herd at the end of 2011–12 takes into account the preliminary estimate of herd numbers at the end of 2010–11 released by the Australian Bureau of Statistics (ABS) on 2 December 2011. The ABS estimates that cattle numbers rose by nine per cent to 28.8 million head as at 30 June 2011. Herd sizes rose in all states except Western Australia and the Northern Territory.

Beef cattle slaughter is forecast to fall by two per cent in 2011–12 to around 7.9 million head, the lowest since 1995–96. While male cattle slaughter is forecast to rise, calf and female cattle slaughter are forecast to decline as producers seek to hold back stock to increase herd sizes. During the September quarter 2011, Australian male cattle slaughter was three per cent higher than for the same period last year. By comparison, female cattle slaughter fell by 13 per cent and calf slaughter fell by 11 per cent, year-on-year.

Higher carcase weights driving production

Despite the forecast reduction in total slaughter, Australian beef and veal production is forecast to remain largely unchanged in 2011–12 at 2.1 million tonnes. This is because widespread fodder availability throughout northern and eastern Australia and the greater proportion of adult males in total turn-off are expected to result in higher average carcase weights.

In the first three months of 2011–12, national average adult carcass weights were four per cent higher than for the same period last year. Gains were highest in Tasmania (5.4 per cent), Queensland (4.8 per cent) and New South Wales (4.5 per cent), which together accounted for three-quarters of national production.

Australian exports to remain steady

Australian beef and veal exports are forecast to remain largely unchanged in 2011–12 at 941,000 tonnes (shipped weight). However, the trade is becoming increasingly diversified, with the proportion of beef and veal exported to the United States, Japan and the Republic of Korea forecast to fall to 68 per cent. Over the past decade these three markets accounted for 82 per cent of Australian beef exports. Growth in export volumes to a number of emerging markets, including many ASEAN countries and the Middle East, is expected.

Exports to the United States

Over the first four months of 2011–12 Australian beef and veal exports to the United States were 11 per cent lower than for the same period in 2010–11. This decline was in response to several factors. First, US beef production remained historically high as drought-induced herd liquidation continued, particularly in the southern states of Texas, Oklahoma, Kansas and New Mexico. This resulted in higher domestic supplies and reduced demand for imported product during that period. Second, poor seasonal conditions resulted in reduced average slaughter weights. This led to relatively more beef being redirected into grinding, reducing demand for Australian manufacturing beef.

Over the remainder of 2011–12, total beef and veal exports to the United States are forecast to recover from the low shipments of the first four months. For 2011–12 as a whole, total export shipments to the United States are forecast to be unchanged from 2010–11 at 160 000 tonnes (shipped weight). In the southern states cattle slaughter is expected to remain high in the absence of any improvement in seasonal conditions, resulting in continued high production of manufacturing beef. For total beef production, the United States Department of Agriculture is still forecasting a two per cent decline in 2011–12, which ref lects the more favourable seasonal conditions in northern states where producers are expected to rebuild herds.

Lower domestic production and forecast higher US beef exports into the Pacific markets are expected to support demand for imported beef, including from Australia, over the remainder of 2011–12. However, the assumed strong Australian exchange rate against the US dollar and strong competition from Canadian and Mexican beef remain the risk factors to the outlook for Australian beef exports to the United States.

Increased competition from the United States in Japan

Australian beef exports to Japan are forecast to fall by four per cent in 2011–12 to 336,000 tonnes (shipped weight). This forecast decline ref lects the combined effect of expected stable beef consumption in Japan and increased competition from US beef in the Japanese market. Japanese consumers have a preference for higher marbled US beef, and recent exchange rate movements have increased the competitiveness of US beef against Australian beef

In Japan, consumption of imported frozen beef rose because of increasing demand in the food service sector, but this was offset by declining sales of premium fresh and chilled cuts. There has also been increased substitution of pork and chicken for beef. Over the past decade, Japanese pork and chicken consumption per person rose by 23 per cent and 21 per cent respectively, while per person beef consumption fell by 25 per cent.

Exports to the Republic of Korea to rise

Australian beef exports to the Republic of Korea are forecast to rise by four per cent in 2011–12 to 145,000 tonnes (shipped weight). The share of Australian imports in the Korean beef import market has been declining because of increasing competition from US beef. Consumer acceptance of US beef after its re-entry to the Korean market in 2007–08 accelerated as it has become more widely distributed, especially in the food service sector. Despite a declining cattle herd, US beef export volumes to the Republic of Korea rose by 47 per cent year-on-year during the first three months of 2011–12, compared with a 12 per cent rise for Australian beef exports.

Over the remainder of 2011–12, Australia is expected to be the primary supplier of imported chilled beef to the Republic of Korea. For the past five years, Australian chilled beef made up 78 per cent of the total chilled beef import market in the Republic of Korea. The recent growth in US beef exports to the Republic of Korea has primarily been for lower value frozen cuts.

Growth in exports to other markets

Australian beef exports to markets other than Japan, the United States and the Republic of Korea are forecast to grow by five per cent in 2011–12 to 300,000 tonnes (shipped weight). Entry of the Russian Federation to the World Trade Organisation from December 2011 is expected to result in Australia gaining improved access to that market. Beef exports to the Middle East are also forecast to increase, by around 15 per cent in 2011–12 to 34,000 tonnes. Exports to ASEAN countries (excluding Indonesia) are also forecast to grow by five per cent to a total of 48,000 tonnes in 2011–12.

Live cattle exports to fall

From 1 July to 6 December 2011, around 253,500 cattle for feeder and slaughter purposes were exported from Australia. Of these, around 65 per cent were exported to Indonesia. Among other markets, the largest were Israel (24,830 head), Turkey (16,530) and Egypt (14,600).

For 2011–12 as a whole, Australian exports of live cattle are forecast to fall by 31 per cent to 500 000 head. Since the resumption of trade with Indonesia, shipments to that country have averaged around 36,000 head per month, compared with a monthly average of 58,000 head at the height of the trade in 2008–09.

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