Beef and veal

Sally Fletcher

The Australian weighted average saleyard price of cattle is forecast to be largely unchanged at an average of 296 cents a kilogram in 2009-10. This price forecast has been revised down since that presented in the March quarter 2009 Australian commodities, largely reflecting an upward revision to the assumed Australian exchange rate for 2009-10.

The forecast weighted average saleyard price in 2009-10 is contingent on the assumption of an improvement in seasonal conditions. Alternatively, if dry conditions in southern Australia persist, turn-off could be higher than expected and prices could be lower than currently forecast.

Herd rebuilding in southern Australia delayed

An estimated 5 per cent increase in the number of beef cows and heifers in 2007-08 indicates that producers were holding on to females with the intention of rebuilding herds. This occurred despite a 2 per cent decline during that year in the total number of beef cattle. Since mid-2008, dry conditions have continued across much of southern Australia, leading to a delay in herd rebuilding.

Cow and heifer slaughter in southern Australia was much higher for the first 10 months of 2008-09 than in the corresponding months in 2007-08. Female cattle slaughter was 19 per cent higher in Victoria and 9 per cent higher in New South Wales. Part of the increase is likely to be attributed to higher dairy cow slaughterings in recent months because of an expected decline in farm-gate milk prices, dry seasonal conditions and low water availability in some irrigated areas. However, it is likely that dry conditions have also led to an increase in the slaughter of beef cows and heifers. Assuming seasonal conditions improve across southern Australia, the number of cows and heifers slaughtered is expected to fall.

In Queensland, cow and heifer slaughter was 6 per cent lower in the first 10 months of 2008-09 than for the same period in the previous year. This suggests that some producers have already begun rebuilding herds in response to an improvement in seasonal conditions in much of the state. Partly offsetting the effect of this rebuilding activity are stock losses from the February 2009 floods in some parts of north-west Queensland, the full extent of which is not yet known.

The Australian beef cattle herd is forecast to increase by 1 per cent in 2009-10 to 25.1 million head as producers begin to rebuild herds. This represents a downward revision from that presented in the March quarter 2009 Australian commodities, largely as a result of a downward revision by the Australian Bureau of Statistics on the beef cattle numbers in 2007-08, continued dry conditions across much of southern Australia and the effect of floods in some regions of Queensland.

Beef production to remain largely unchanged

The total number of cattle slaughtered in 2009-10 is forecast to remain around 8.8 million head. Steer slaughter is forecast to increase, particularly in Queensland and northern New South Wales. Seasonal conditions in these areas have been favourable and it is expected there will be an increase in the turn-off of grass-fed cattle if these conditions persist. This is likely to offset the expected decline in cow slaughter in southern Australia.

With average slaughter weights forecast to be largely unchanged from 2008-09, beef and veal production is forecast to remain around 2.2 million tonnes in 2009-10.

Australian beef exports to decline

Total Australian beef exports are forecast to fall by 2 per cent in 2009-10 to 940 000 tonnes. While exports to the United States are forecast to rise, lower export volumes are expected for the Japanese and Korean markets. Another contributing factor to the forecast decline in total exports is lower expected shipments to emerging markets. In particular, exports to the Russian Federation are forecast to be markedly lower in 2009-10.

Australian beef exports to markets other than the United States, Japan and the Republic of Korea were significantly higher throughout the latter half of 2007-08 and into 2008-09. However, exports to the Russian Federation (which comprise the large majority of exports to the Commonwealth of Independent States) have declined since August 2008 as a result of lower income growth because of the economic downturn and reported difficulties in accessing credit for imports.

Exports to the Russian Federation and other smaller markets are expected to increase gradually during 2009-10, particularly towards the latter half of the year. However, monthly exports to these markets are not forecast to reach the volumes seen in mid-2008.

Australian beef exports to the Republic of Korea to decline

Exports of Australian beef to the Republic of Korea are estimated to be 25 per cent lower in 2008-09 than a year earlier. This is because the restrictions imposed by the Korean Government on US beef were relaxed, resulting in a loss of market share for Australian beef. Exports of Australian beef to the Republic of Korea are forecast to fall by 5 per cent in 2009-10, as competition from US beef increases further.

Prior to the discovery of bovine spongiform encephalopathy (BSE or mad cow disease) in the United States in 2003, most Koreans had a preference for US beef over Australian beef. This was evident in the higher volume of beef imports from the United States and the higher price of US beef in the Korean market. One of the main factors which distinguishes US beef from Australian beef is its higher marbling because US beef is grain-fed. Another factor is the difference in the cuts supplied by the two countries. The majority of beef cuts imported from the United States prior to 2003 were ribs, chuck and brisket, which are the cuts largely preferred by Korean consumers. Imports from Australia were comprised of these cuts as well as a range of other cuts including loin, foreshank and rump, since there is a limited market for these remaining cuts in Australia. Since 2003, most imported beef in the Republic of Korea has been sourced from Australia and still comprises the broader range of cuts.

Given the differences between the Australian and US cattle industries, Australia was limited in its capacity to meet the excess demand for grain-fed, bone-in beef after the United States was excluded from the Korean market in 2003. Imports of Australian bone-in beef more than doubled between 2003-04 and 2005-06, but were still significantly lower than Korean imports of the product from the two countries in 2003-04 and the preceding years. However, Australia was able to fill the demand for boneless beef. By 2006-07, Australia was supplying close to the volume that was imported from both Australia and the United States prior to 2003.

One advantage for US beef exporters trying to regain Korean market share is the flexibility to supply solely the preferred cuts. Since Australia has been unable to satisfy Korean demand for bone-in cuts, an increase in bone-in beef imports from the United States will not necessarily have a significant effect on Australia’s exports. Total Korean beef imports are forecast to increase in the short term and this growth is expected to lessen the adverse effect on Australian beef of an increase of US bone-in beef in the Korean market.

Another mitigating factor which is expected to lessen the effect of the United States’ return to the Korean market on Australian beef exports is the negative public reaction to US beef. The Korean Government relaxed the import restrictions on US beef in mid-2008, which led to large public protests and the refusal of major retailers to sell US beef for the following few months. This indicates that some Korean consumers distrust the quality of US beef and it is likely these consumers will continue to prefer Australian beef, which has a healthy, clean and safe image.

Reflecting this, and the expected increase in total imports, Australian beef exports to the Republic of Korea are forecast to remain above pre-2003 volumes, at around 105 000 tonnes in 2009-10.

Weaker Japanese demand for Australian beef

Export prices of Australian grass-fed and short-fed beef have fallen sharply since mid-2008. The lower prices for both types of beef reflect a steady weakening in the underlying demand for beef, as represented by the export price for beef in US dollars, the principal currency for beef trade. The weaker demand comes on the back of the global economic downturn, which has significantly affected the Japanese economy and has led to a decline in incomes.

Another factor contributing to the significant fall in the export prices of beef to Japan is a gradual increase of US beef in the Japanese market. This greater supply of beef on the Japanese market has put downward pressure on imported beef prices. Despite the significant fall in price, the quantity of Australian beef exported to Japan between July 2008 and May 2009 was only slightly below those volumes exported during the same period a year earlier.

In 2009-10, Australian beef exports to Japan are forecast to fall to 350 000 tonnes. The principal reasoning behind this forecast is twofold: increased competition from US beef for market share and dampened demand for beef arising from the economic slowdown in Japan.

Australian beef to remain competitive in US market

Australian beef exports to the United States fell by 21 per cent in 2007-08 as the landed price of Australian beef increased in response to a significant appreciation of the Australian dollar. US imports of Australian beef began to increase in September 2008, with the appreciation of the US dollar and a strengthening of demand for cheaper beef cuts as a result of the economic downturn.

In the United States, imported manufacturing beef is usually mixed with domestically produced grain-fed trimmings to produce ground beef. The demand for cheaper meat, such as ground beef, is expected to remain strong throughout 2009-10 as consumers’ willingness to buy more expensive cuts remains low.

The import price of Australian beef in the United States has fallen since August 2008, making Australian beef much more competitive in the US market, particularly relative to imported Canadian and Uruguayan beef. With the value of the Australian dollar assumed to appreciate only modestly in 2009-10, Australian beef is expected to remain competitive in the US market. Reflecting this, Australian beef exports to the United States are forecast to increase by 7 per cent in 2009-10 to around 300 000 tonnes.

Australian live cattle exports

Australian live cattle exports are estimated to increase in 2008-09 for the third consecutive year, largely reflecting strong demand in Indonesia. However, live cattle exports to other markets are estimated to have fallen this year. Exports to these markets were down by around 7 per cent in the first 10 months of 2008-09 compared with the corresponding period in 2007-08.

With lower economic growth assumed for Indonesia, other South-East Asian countries and the Middle East in 2009 and 2010, the demand for Australian live cattle is expected to be adversely affected, albeit not significantly. Live cattle exports are forecast to decline by 2 per cent to 780 000 head in 2009-10.

Beef and veal outlook
			2007-08	2008-09	s	2009-10	f	% change
Cattle numbers		million	27.3	27.4		27.6		0.7
– beef		million	24.8	24.9		25.1		0.8
Slaughterings		’000	8 799	8 760		8 780		0.2
Production		kt	2 155	2 164		2 175		0.5
Exports (shipped weight)
– to United States		kt	240	280		300		7.1
– to Japan		kt	365	360		350		– 2.8
– to Korea, Rep. of		kt	146	110		105		– 4.5
– total		kt	930	960		940		– 2.1
– value		A$m	4 190	4 850		4 520		– 6.8
Live cattle		’000	713	795		780		– 1.9
Price
– saleyard		Ac/kg	286	295		296		0.3
– US import		USc/kg	303	304		308		1.3
– Japan import		USc/kg	510	452		440		– 2.7