THE Australian beef industry is faced with the challenge of rebuilding a herd and satisfying growing market demand at the same time, warns head of agribusiness Australia ANZ Mark Bennett.
Mr Bennett said the national herd had dropped from 26.5 million to 23.3m in three years, driven by drought and high prices.
“We need to build sustainable programs for people to succeed over a long time,” Mr Bennett said.
“Managing money and opportunities is critical.”
Mr Bennett launched the ANZ Cattle Call report at the Kimberley Pilbara Cattlemen’s Association annual conference recently.
“The industry has to ask where will the cattle come from to supply our export markets?” he said.
“Our modelling suggests it will take more than 10 years to rebuild a herd in order to sustainably satisfy the market at peak volumes achieved three years ago.
“ANZ modelling also shows that rebuilding the herd will pay off in the medium and long-term.
“A high herd growth, low slaughter scenario could support $16.4 billion of output by 2025, compared to $9b in the low herd growth, high slaughter scenario and $11.8b in an average growth scenario.
“This compares to an output value of $10.46b in 2015.
“The low slaughter scenario in the short-term will start to produce more output than the high slaughter scenario by as early as 2019.”
Mr Bennett said managing the need to satisfy key markets in terms of reliability of supply and value with the need to rebuild was challenging.
“Food safety remains the number one selling attribute of Australian beef and protecting this competitive advantage is the industry’s number one objective.
“However, given the majority of our total beef production is destined for export and this is where our growth opportunity remains, we cannot avoid the need for productivity gains through the supply-chain in order to remain globally competitive.”
Mr Bennett said it was difficult to track the herd size accurately.
He said the national herd decline was the biggest in recent history.
“It has been driven through drought in the north, but also through opportunity selling in the south,” he said.
“This is starting to explain our dilemma – high cattle prices represent a great opportunity for now, but if you sell harder into those markets you have then got the need to replace and grow again.
“Historically we have seen a price spike, we have made the most of it and the cycle changes, but the higher prices have been stuck.
“So we have the dilemma of buying back in, at high prices, with the view that it will be a sustained high price to capitalise on in the next 12 months.
“It is a hard one and it will probably create some issues, even in WA.”
At its peak the national herd reached 30m and Mr Bennett said the most the herd ever rebuilt in a single year was 1.9m head.
“That was at a time when we carried about 13m females in the herd,” he said.
“We are down to 11.7m females. That is problematic.
“We are less optimistic about how quickly our herd can rebuild.”
Mr Bennett said “on an aggressive-case we would see the herd build in 2025 to a little over 30m-33m”.
“On current trends we will be in a case of decline and on a low case would reduce to 15m head – which I don’t suspect will happen, but it highlights the issue.
“If seasonal conditions don’t improve, there could still be a decline.”
If the herd was to continue to decline, Mr Bennett said it would be difficult to supply traditional markets.
“If we can’t supply those big markets will look to alternatives,” he said.
Mr Bennett said lower prices would help the Australian beef industry by helping to rebuild the herd and giving the industry guidance to a trading range.
“It’s been a little blue sky. We need to have some vision,’’ he said.
“It’s important to understand what we are making today, but also the cost of production – what price per kilo it really is.”
Mr Bennett said from a local and global persective the hottest commodities going around were red meat – sheep and cattle.
Mr Bennett said America has become the biggest beef market, ahead of Japan, Korea and China for Australian beef.
“America is also rebuilding its herd from historic lows, global demand for high value Australian grinding beef continues to increase,” he said.
“While global competition for the China market has increased, Chinese consumers are also increasing their purchase of higher value cuts from Australia which provides producers with value, not just volume, as a boost to our supply chain.
“While producers agonise over buying or selling, and others still look for drought-breaking rains, our global competitors are starting to find their feet and are gradually re-entering the markets which Australian producers have increased sales to in recent years.”
Mr Bennett said 12 months ago China signalled its intent to import significant numbers of live slaughter cattle from Australia – up to one million head per annum.
“Investments have been made in China and Australia to facilitate this trade, however live animal trade remains subject to many external pressures, strict conditions of operation and regulatory uncertainty,” he said.
“The industry has also seen the recent announcement that Elders will exit its live cattle haulage business.”
He said China was an important space to watch.
“There is a upward opportunity in the consumption of beef,” Mr Bennett said.
“There single biggest priority is food that won’t kill them.
“There are two markets in China, one is in volume, and not just restaurants, for protein that is safe – that is the biggest driver.
“We will need to see where it tracks, the Australian dollar and other factors will impact this market opportunity – but we see a good, long horizon.”