What is beyond the cattle price crest?

20 Sep, 2016 06:05 AM
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Rabobank's animal protein analyst Matthew Costello.
Rabobank's animal protein analyst Matthew Costello.

AS attention turns to when the inevitable correction in the cattle market is likely to start in earnest, producers are being told they can still plan for a higher-than-average price range out to 2020.

Stock agents, consultants and analysts say the increasingly tight supply of cattle for sale is likely to continue until at least next autumn.

Restocker demand, fuelled by optimistic seasonal forecasts, is also likely to get even hotter during that period, creating the ongoing ingredients for the market to linger at current rates.

Past that point, global dynamics, including growing production in countries Australia competes with and the ensuing lower demand for higher-priced Australian beef, should start to come into play.

Agribusiness banking specialist Rabobank points out farmgate cattle prices are now the highest of all key producing countries in the world and its analysts believe that can not be sustained in the medium to longer term.

In its latest beef research report, Rabobank identifies six key factors that will influence cattle farmgate prices in the next few years.

Lower domestic production, record global beef production, increased competition from cheaper proteins, China’s role in global trade, market access and currency movements will be the main drivers of where cattle prices settle, it says.

Report author, animal protein analyst Matthew Costello said on balance, those developments underpinned a positive outlook for the cattle industry.

The big headwinds will come from forecast record global beef production by 2020.

Rabobank puts that figure at an additional five million tonnes of beef, driven mainly by Brazil and the United States, with Argentina also coming into the equation to a greater extent.

Around 1.5m tonnes of that will be exported, with China expected to take the lion’s share, Rabobank forecasts.

“China is fast becoming the most important cog in the world beef complex,” Mr Costello said.

Given Brazil’s ability to offer beef at significantly lower rates, where is Australia’s best chance of tapping into that Chinese demand?

“There are three key sales channels for Australian beef into China,” Mr Costello said.

“They are food service, the wet market and modern retail, which is the likes of supermarkets, hypermarkets and e-commerce.”

The more significant growth potential was presenting in the second two, with the e-commerce space likely to be of particular interest to Australian beef moving forward, he said.

“China is still a relatively new market for Australian beef and as the supply chain matures and end users get used to our product, and the chilled logistical chains in particular develop, we should be able to extract more value,” Mr Costello said.

“But we can only expect to see even more competition from Brazil and the grey channel trade.”

Mr Costello said producers should be ‘doing their numbers’ based on returns lower that what the current market is at.

“The bottom line is there is a significant imbalance between farmgate prices and the export market at the moment,” he said.

Just how much that disparity between weak export prices and high procurement costs will eat into Australian beef’s overseas market share, and whether that can be quickly regained when cattle supply lifts, is the great unknown.

Some exporters say the high price of Australian beef at the moment is driving previously loyal, and large, customers towards the competition - a situation that will be difficult to remedy.

Others say demand is still strong, and in some overseas markets is actually increasing.

Managing director of Queensland grainfed beef producer and exporter Stockyard, Lachie Hart, said despite higher prices, demand continued to be strong from the Middle East, Japan and Korea.

“This is being driven by continued economic development in markets like UAE as well as better access in markets like Japan and Korea from free trade agreements,” he said.

In markets like Japan, Stockyard had actually increased market share, he said.

Suitable livestock was, however, getting more and more difficult to find, Mr Hart said.

“Whilst we are obtaining our requirements at the moment, we expect this will prove more difficult next year,” he said.

“The general rain we have been receiving is great news for our breeders and hopefully this will assist our ability to restock in a few years time.”

Restocking decisions dictated by grass

Northern Queensland beef consultant Peter Whip said longer-term trends were always in the back of minds but most restocking decisions in Western Queensland were now being dictated by grass availability.

“For those who had to totally destock, the focus is just to get back into production,” he said.

“Mitchell Grass hasn’t come back in the majority of areas, despite the rain, and that response won’t come until summer.

“Certainly, people are thinking if they buy a heifer for $1000 now, what will that mean when the market turns.

“But most are pragmatic enough to say ‘I have to get back into production.’

“I can’t see anything pointing to the market coming back in the short term but those buying buying heifers now to rebuild know it will will be two to three years before they’ll get a return on cattle up here.”

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FarmOnline
Shan Goodwin

Shan Goodwin

is the national beef writer for Fairfax Agricultural Media.
Date: Newest first | Oldest first

READER COMMENTS

David Hill
20/09/2016 9:33:01 PM

Maybe its time for a new beef industry business model? History shows the fundamentals haven't changed,until recently, market comparisons showed Australian product was selling on the global market for the same price as Brazilian. Pricing seemed to be more about seasons and the A$,now it's all about the global meat market,can't remember that getting much of a mention in 2013! Surely it's time for us to have price signals based more on quality, and compete globally on that basis? Whole of industry CoP pressures hardly make us price point competitive! Is there more value in Value Based Marketing?

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