30 October 2012

9 minute read

The Australian weighted average saleyard price of beef cattle is forecast to fall by 4 per cent in 2012–13 to 315 cents a kilogram (dressed weight). Domestically, demand for restocker cattle is expected to continue, although at a pace slower than the previous two seasons when favourable conditions encouraged producers to expand herds. Herd sizes are now the largest in over 30 years and supplies of cattle suitable for slaughter are forecast to increase in the coming year. Export demand from the United States and emerging markets is expected to remain strong, although trade with the traditional markets of Japan and the Republic of Korea is likely to slow, reflecting the impacts of increased competition from other major beef exporters, and an assumed high value of the Australian dollar, especially against the US dollar.

Herd Growth to Slow in 2012–13

Lower demand for restocker cattle compared with the previous two years is expected to contribute to national cattle herd growth slowing to 2 per cent in 2012–13 to 30.5 million head. This compares with an estimated growth rate of 5 per cent in 2011–12, when favourable seasonal conditions led to significant pasture growth in many cattle producing regions. Producers responded to favourable seasonal conditions by purchasing restocker cattle and retaining breeding stock. Reflecting the effect of herd rebuilding, female cattle slaughter fell 7 per cent in 2011–12 to 3.1 million head, the lowest in 16 years.

Cattle Slaughter to Rise in 2012–13

In 2012–13 Australian cattle slaughter is forecast to increase by 3 per cent to 8.1 million head, underpinning an increase in beef production to around 2.2 million tonnes. After more than two years of herd rebuilding, supplies of cattle suitable for slaughter are expected to increase. Carcass weights over the coming year are expected to average slightly lower than the highs of 2011–12 because of an expected increase in slaughter of lighter female cattle.

In 2011–12 Australian cattle slaughter fell by 3 per cent to 7.9 million head, its lowest since 1985–86. However, beef production declined less than 1 per cent from the previous year, largely as a result of increased slaughter of heavier male cattle which contributed to a 2 per cent increase in average adult carcass weights to a record 288 kilograms.

f ABARES forecast.

Growth in Exports to Slow

Australian beef and veal exports are forecast to increase by 1 per cent in 2012–13 to 955 000 tonnes (shipped weight). This reflects increased volumes to the United States and many smaller markets offsetting lower exports to Japan and the Republic of Korea. With the Australian dollar assumed to remain relatively high in 2012–13, strong competition is likely to continue in the traditional markets of Japan and the Republic of Korea, especially from imported US beef.

Despite a small forecast increase in export volumes, the total value of beef and veal exports is forecast to remain close to $4.5 billion in 2012–13. Demand from Japan and the Republic of Korea, which accounts for around 45 per cent of Australian beef and veal exports, is expected to shift from higher value chilled and grain-fed cuts to cheaper frozen grass-fed varieties. In the United States, demand growth in 2012–13 will continue to be for manufacturing beef. For markets in South-East Asia and the Middle East shipments are forecast to increase.

f ABARES forecast.

Exports to the United States

Australian beef and veal exports to the United States in 2012–13 are forecast to increase to 215 000 tonnes, 5 per cent higher than in 2011–12 but remaining below the 10-year average of 277 000 tonnes. Increased US demand for manufacturing beef in 2012–13 will be supplied by a combination of increased imports, and continued liquidation of the US beef and dairy cow herds.

Worsening seasonal conditions in the United States have resulted in the proportion of US cattle producing regions affected by drought increasing to more than 70 per cent. Sharply higher feed grain prices are expected to result in deterioration of producers’ margins, and contribute to continued liquidation of cattle and cow herds in 2012–13. In expectation of continued slaughter of beef and dairy cows, the United States Department of Agriculture revised its forecast for US beef production in 2012–13 from 11.2 million tonnes (5 per cent below 2011–12) to 11.5 million tonnes (2 per cent below 2011–12). Most US beef is grain-fed ‘marble’ beef, which is not a perfect substitute for Australian grass-fed ‘lean’ beef exports. Australian beef is mainly used in that market to mix with US fatty beef for food products such as hamburgers. Increased slaughter of dairy cows is likely to be one major source of competition with Australian beef in US market in the short term.

In 2011–12 Australian beef and veal exports to the United States increased by 29 per cent to 206 000 tonnes (shipped weight), following declines of 24 per cent and 25 per cent, respectively, in 2010–11 and 2009–10. US import demand for beef increased in 2011–12, reflecting a 3 per cent fall in US cattle slaughter to 34.3 million head, and a 2 per cent fall in US beef production to 11.8 million tonnes.

f ABARES forecast.

Exports to Japan to Fall

In 2012–13 Australian beef and veal exports to Japan are forecast to fall by 3 per cent to 315 000 tonnes (shipped weight), primarily because of an increase in US beef exports to the Japanese market. Aided by a relatively competitive exchange rate, US beef is expected to continue displacing beef from Japan’s other major suppliers, including Australia, New Zealand and Canada. Demand for US grain-fed beef, typically preferred over Australian beef because of its higher marbling rates, is expected to continue rising, resulting in a further decline in Australian exports of high-value chilled cuts. Conversely, Australian exports of lower-value frozen cuts, mainly consumed in the food-service sector, are expected to remain high over the coming year.

In 2011–12 Australian beef and veal exports to Japan fell by 7 per cent to 326 000 tonnes (shipped weight), the lowest in nine years. A 20 000 tonne fall in shipments of chilled beef accounted for most of the decline. An increase in the proportion of cheaper frozen beef exported to Japan in 2011–12 led to a decline of 4 per cent in the average export unit price. In contrast, exports of US beef to Japan increased by 7 per cent in 2011–12 to 137 000 tonnes, with a 10 000 tonne increase in chilled beef. Since peaking in 2004–05, the value of Australian beef exports to Japan has fallen by more than 35 per cent to $1.58 billion in 2011–12.

f ABARES forecast.

Lower Exports to the Republic of Korea

Australian beef and veal exports to the Republic of Korea are forecast to decline by 9 per cent in 2012–13 to 112 000 tonnes, reflecting increased Korean beef production and greater competition in the Korean beef import market, especially from the United States. Korean cattle slaughter is expected to remain historically high in 2012–13, reflecting high feed costs and the Korean Government’s 30 billion won (around $26 million) program to encourage producers to increase slaughter. Payments of 300 000 won (around $260) per head for cows and 500 000 won (around $430) per head for heifers will be made to cattle farmers to reduce the number of lower performing females (for example, inferior progeny) by 200 000 head by December 2013. The program was implemented to stem herd growth, and stimulate cattle prices over the medium term. In the short term, increased supplies of domestic beef in the Republic of Korea will lead to reduced demand for imported beef, of which 50 per cent is presently sourced from Australia.

Greater competition in the Korean beef import market from alternative suppliers is also expected to contribute to reduced Australian exports in 2012–13. The US share of Korean beef imports is expected to rise over the coming year, following relaxation of import controls imposed in April 2012 after discovery of a bovine spongiform encephalopathy (BSE) infected dairy cow in California. The relatively low value of the US dollar, and reduction in tariffs applied to US beef under the Korea–US Free Trade Agreement to 34.65 per cent (compared with 40 per cent for Australian beef) are also expected to facilitate growth in the share of US beef in the Korean beef import market. Further competition will come from Latin America. In July 2012 the Korean Government announced that imports of beef from Chile would be permitted. Inspections of abattoirs in Uruguay are also expected to commence with a view to resuming imports of Uruguayan boneless beef. Uruguayan imports were previously permitted but ceased in 2001 following discovery of foot-and-mouth disease in that country.

Emerging Markets Increasingly Important

Australian beef and veal exports to markets other than Japan, the United States and the Republic of Korea increased by 3 per cent in 2011–12 to 294 000 tonnes, comprising 31 per cent of total beef export volumes. This was an increase of 12 percentage points from five years ago. Average export unit returns from these markets in 2011–12 increased by 8 per cent year-on-year to $4.91 per kilogram. This reflects a 34 per cent increase in shipments of higher value chilled beef to these markets, and reduced competition from US beef. By comparison, Australian beef exports to Japan, the United States and the Republic of Korea in 2011–12 were valued at an average of $4.75, $4.37 and $4.66 per kilogram, respectively.

Exports to the smaller and emerging markets are forecast to increase further in 2012–13 to 313 000 tonnes (shipped weight). Exports to South-East Asia and the Middle East are forecast to rise, as Australian exporters look to markets offering higher unit returns than those in North Asia, at least in the short term.

Live Cattle Exports

In 2011–12 exports of live feeder and slaughter cattle fell 21 per cent to 579 000 head. The largest decline was in cattle to Indonesia, which fell by 81 000 head to 375 000 head as a result of the Indonesian Government issuing fewer import permits. In addition, shipments to Turkey and Saudi Arabia in 2011–12 fell by 64 000 head and 20 000 head, respectively. Partially offsetting these declines were increased exports to Israel, the Philippines and Egypt.

Live feeder and slaughter cattle exports are forecast to fall by 17 per cent in 2012–13 to around 480 000 head. Shipments to Indonesia are forecast to decline. Assuming the 2012 live cattle import quota remains unchanged, only 98 000 head of cattle will be exported to Indonesia during the first half of 2012–13, compared with 191 000 head for the same period in 2011–12.

On 1 September 2012 the Exporter Supply Chain Assurance System (ESCAS) regulatory framework was extended to the second tranche of Australian slaughter and feeder livestock export markets. Implementation of the framework to Israel, Japan, Jordan, Malaysia, Oman, the Philippines, Saudi Arabia, Singapore and the United Arab Emirates (UAE) is in addition to Indonesia, Egypt and the first tranche countries of Kuwait, Bahrain, Qatar and Turkey for which ESCAS was implemented on 1 March 2012. This means the Australian Government’s reforms now apply to 99 per cent of Australia’s livestock export trade.

Some supply chains in countries covered by the second tranche implementation of ESCAS were not certified by 1 September 2012. It is the responsibility of individual exporters to ensure supply chains in importing countries meet ESCAS requirements. Failure to gain ESCAS approval for a supply chain in an importing country prohibits the shipment of Australian feeder and slaughter livestock to that supply chain. All Australian feeder and slaughter livestock will be exported under the system by the end of 2012.

a At 30 June. f ABARES forecast.
Sources: ABARES; Australian Bureau of Statistics; Department of Agriculture, Fisheries and Forestry

October 2012