The Australian cattle industry has been enjoying a run of historically strong prices, but shifts in the international beef trade are squeezing the market conditions that made the price boom possible.
Seasoned industry economist Dr Peter Barnard, managing director at consultancy Oliver & Doam, has been warning the sector that the 2005–2015 boom years were reliant on China, and that China’s economy has changed, along with its approach to beef imports.
Chinese demand for beef is tightly correlated to the Chinese sense of affluence, Barnard says.
“The biggest factor in our sudden increase in sales to China was Chinese income growth, but that growth is not being sustained at past levels.”
During China’s strongest period of economic expansion, GDP was running
at around 10 per cent. That’s now roughly halved, Barnard observes. Added to this, competition in the market has significantly increased.
Up until 2015, Australia, New Zealand and Uruguay had almost exclusive access to this market, with Australia being the dominant supplier. Now, Brazil is the main supplier, with Argentina also providing significant quantities. Last year, the US was also granted access to the Chinese market.
Barnard points to the cost and security of grain supplies as a challenge over the short to medium term. Feedlot demand for grain is at record highs. Cattle on feed topped one million for the first time in Australia in 2017, shooting up to nearly 1.1 million in the June quarter.
Meat and Livestock Australia (MLA) forecasts that in 2018, as producers turn
to rebuilding their herds, numbers on feed will fall to between 850,000 and 950,000.
These are still historically high figures and sustaining them may be challenging in the face of higher grain prices. Feedlot profitability is tightly linked to grain costs and Barnard notes that grain prices in Australia have risen sharply in the past 12–18 months.
“I can’t see a return to the higher  Australian cattle prices in the foreseeable future,” Bernard says.
The Australian Competition and Consumer Commission also warned on Friday that despite recent improvements in cattle market conditions, prices were likely to come under pressure in 2018. In a progress report released by the competition watchdog a year after reviewing the industry, it said it was concerned that slow progress in implementing its recommendations would impede the sector’s efficiency.
In the meantime, MLA reports that Australia’s herd rebuild continues. The national herd pushed past 29 million in 2013–14, then shed about 1.5 million
head in 2015 as record high prices and dry conditions encouraged a mass sell-off.
Numbers shrunk again in 2016 as continued strong prices helped producers make the decision to lighten stock numbers due to the extended dry conditions across much of the country. However, MLA believes that the national herd started growing again in 2017.
One strong indicator of producer intent is the proportion of females slaughtered
in comparison to males. For the 2017 year through to November, the female slaughter was running at 45 per cent, a sure indicator they were being held back for breeding.
The outstanding question for the industry is, as always, what the beef export landscape will look like when the current investment in stock needs to be recouped in sales.
Scott Tolmie, head of MLA’s Market Information team, says Australia is now increasing beef production at the same time as the other big forces in global beef markets, the US and Brazil. The US beef industry, having undergone its own rebuilding, is looking at record years of production in 2018–19.
Fortunately, Tolmie notes, the US consumer is responding to cheaper beef prices, having stepped up per capita beef consumption 3–5 per cent in 2016–17.
“From Australia’s perspective,” he comments in MLA’s latest Cattle Industry Projections, “it is critical that US domestic consumption keeps pace or exceeds the rate of increase in production, otherwise this excess beef will be flowing into our competing export markets, particularly Japan and Korea.”
Brazil, too, appears to be ready to ramp up beef production over the next few years. Lesser-quality Brazilian beef sets pricing in the lower end of the market, in regions like China and the Middle East, so a flood of South American product means unwelcome competition for Australia.
However, Brazilian aspirations to compete in higher-value segments might continue to be thwarted by domestic uncertainties, leading to low investment in its beef industry.
For Tolmie and Barnard, the evidence is growing that the prosperity of Australia’s beef industry rests with going in the opposite direction: reinforcing its position as a supplier of high-quality product backed by quality assurances and traceability.
At the very least, Tolmie says, quality and safety assurance help open the doors to the higher-end markets Australia needs. Once in, it is then up to the industry to consolidate the Australian brand in ways that ensure it can’t easily be dislodged by the never-ending push and shove of global beef interests.
This is an edited version of an article published in a special edition of Produce Magazine by Westpac Agribusiness to mark Beef Australia 2018, the national beef expo held in Rockhampton, Queensland, from May 6 to 12.
By Michael Bennet
Editor, Westpac Wire