CATTLE saleyard prices should sit just above 400 cents a kilogram (dressed) in 2015-16, and stay there out there to 2017-18, says the national commodities forecaster.
The Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES) forecasts few surprises for beef and veal in its latest outlook for agricultural commodities: prices are expected to remain strong on the back of reduced supply and solid export demand, underpinned by a low Australian dollar.
“Herd rebuilding following two years of drought has to date only put a slight check on the supply of cattle slaughter”
ABARES analysts note that much depends on “a return to average seasonal conditions”.
That scenario is looking questionable for some areas, especially stressed areas of western Queensland, as the odds of further monsoon rains lessen with the fading of summer.
But Meat and Livestock Australia (MLA) analyst Ben Thomas thinks even if the next two months don’t produce much more rain, cattle prices should stay on a floor well above those of the dark days (for producers) of 2013.
His assessment is based on persistently strong prices that are holding even though slaughter rates remain high - and that cattle prices rose through the worst days of drought in 2014.
Herd rebuilding following two years of drought has to date only put a slight check on the supply of cattle slaughter - largely because the continued threat of drought is by no means absent.
ABARES expects the high slaughter rate to continue through the remainder of the financial year, as higher cattle prices encourage producers to offload.
In 2015-16, cattle slaughter is forecast to fall 6 per cent to 8.9 million head as herd rebuilding begins in earnest, coupled with lower than average branding rates.
The Australian cattle herd has fallen hard from its high of 29.3 million on June 30 2013, and is expected to reach 27 million this coming June.
The attrition will continue in 2015-16, with improved calving figures likely to be offset by a high cattle slaughter and live exports. Slow herd recovery should begin in 2016-17, reaching 27.2 million in June 2020.
Overseas demand for Australian beef continues unabated.
Beef and veal exports will grow by about three per cent in the current financial year to more than 1.2 million tonnes.
The United States, which last year again became Australia’s largest beef export destination, looks likely to hold that position for the coming year, and maybe out to 2019.
Free trade agreements (FTAs) with Japan, Korea and China will boost growth in these markets, and consolidate their importance to Australia.
After contracting before increased competition from the United States, Australia’s beef exports to Japan are expected to lift by seven per cent in the current year, and to grow another seven per cent in the following year, to 320,000 tonnes, as the results of the Japan-Australia FTA begin to reduce import tariffs.
Australia’s competitiveness against the US in Japan is likely to be also improved by appreciation of the $US against the yen, compared to the $AUD.
Japan’s economic growth is expected to be sluggish out to the end of the decade. If that’s the case, growth of Australian beef exports to the country will be slow too.
The spike in Australia’s beef exports to the United States - up 58 per cent in 2014-15, to 420,000 - will subside by 10 per cent in the coming year, and another 8 per cent the following year.
The drop will be partly be driven by Australia’s constrained supply of cattle, partly by high US beef prices encouraging consumer substitution for chicken and pork.
Those price rises contributed to a jump in value of Australian beef landed in the US. In the first half of 2014-15, the average unit value of Australian beef to the US was $6.62, compared to $6.08 in Japan and $6.34 in Korea.
In December, unit value to the US hit $7.47/kg.
Beef exports to China will fall by about 25 per cent in 2014-15, to 120,000 tonnes, and by another two per cent in 2015-16.
The falls reflect higher prices for Australian beef, and greater competition from South America. Between July-November 2014, Australian exports to China fell 41 per cent on the previous year, while Uruguay’s beef exports to China rose 28 per cent in the same time.
As the Chinese-Australia FTA reduces tariffs on Australian beef, Australia’s shipments of beef to China are expected to steadily rise again out to 2019.
Live export shipments of feeder and slaughter cattle are expected to fall 10 per cent in 2015-16, as supplies of exportable cattle shrink.
ABARES expects those numbers to rise back to a million head by 2019-20, supported by growth in Indonesian beef consumption, and increased demand from Vietnam and Malaysia.
New demand may come from China, Thailand and Lebanon if supply chains are developed.