AUSSIE beef producers will welcome strengthening beef market sectors, such as the EU, Korea (and Russia) which will help balance the past six-month period plagued by a high dollar, robust US competition, the banning of live beef exports to Indonesia and fallout from Japan’s natural disasters which have softened overall expectations for beef’s performance for the remainder of 2011.
Australia’s biggest market, Japan, has had a tough six months and its demand for quality Aussie beef has been like a canary testament to that fact.
A four per cent increase in beef consumption in Japan from January to May totalling 352,729 tonnes (shipped weight) has done little to counter a soft US dollar and swing by consumers from more expensive cuts to cheaper restaurants such as McDonalds, according to MLA’s chief economist, Tim McRae.
He said earthquakes and tsunamis had affected consumer sentiment – “for weeks after they showed respectful constraint, bunkering down at home instead of eating out”.
This, with the increased competition from the US, supported by its weak currency, had dashed what was a positive start to the year.
“(However), the US was always going to put more meat into that market this year,” Mr McRae said.
January to May saw a 53pc jump in Japanese imports of US beef to 41, 842t (swt) – the highest total since 2003 – while export returns for Australian beef dropped 15 to 20pc from pre-earthquake highs, according to Mr McRae’s report, Australian Cattle Industry Projections Mid-Year Update.
For the first half of 2011, Australia exported an estimated 23pc (167,000t swt) of its total beef production to Japan – or more than one in every five beef animals – making it the single biggest market for Aussie beef exports and a big factor in Australia’s price direction, he said.
In his report, Mr McRae said exporters hit by the subdued demand had few market options, so they had continued to ship to Japan on poorer margins.
Australian beef and veal exports to Japan were now expected to drop three per cent for the year (compared to the MLA’s February outlook) to finish at 345,000t (swt).
The first half of the year (totalling 167,000t), was also down three per cent.
No sector was feeling this more than feedlots afflicted with high input stock and grain costs, then reduced prices for the finished item, he said.
“Overall, a robust Japan beef market is crucial to the overall health and financial performance of the Australian beef and cattle industry – a fact clearly demonstrated in recent months.”
However, a bright spot in an otherwise tumultuous six months had been the increased hunger for imported beef in Korea, Mr McRae said.
The spark has been due to that country’s own unsettling issues, including a foot and mouth outbreak which resulted in 3.5 million pigs being destroyed, pushing up the price of pork.
A total of 150,000 cattle were also destroyed from a national herd of three million, the combined effect being to raise awareness among Korean shoppers of safety in buying imported beef from Australia and the US.
“The whole size of the Korean pie has grown,” Mr McRae said.
For Australia, this had meant a 26pc increase in export volumes to Korea to 73,000t (swt) for the first six months of the year which, given the strong start, was expected to finish 2011 at 140,000t (swt) – an increase of 13pc on 2010, he said.
The US performance, however, was expected to overshadow Australia’s progress in this market, with its currency advantage helping lift its market share in 2011 and to capture some of Australia’s market share in 2012, dropping Aussie exports to Korea to 120,000t (swt).
This was fed by a shrinking US herd – perhaps a positive to Australian producers in the longer term – but in the short term the high kill rate was directing supply into markets such as Korea and Japan.
Good prices, tight margins (in particular for smaller farms), and a lingering drought in southern US had continued to encourage cattle to slaughter.
This increased US supply also had resulted in a 24pc decrease in Australian exports to the US for the first half of 2011 to 80,731t, with only a slight improvement on this figure expected for the rest of the year to finish on a 14pc overall decline.
However, the combination of a shrinking US herd and the prospect of a 48,500t (swt) EU grainfed quota this time next year looked good for Australian producers, according to Rabobank senior market analyst, Wendy Voss.
Brazil’s limited cattle numbers and traceability issues meant it was unable to take advantage of this, leaving the US, Canada and New Zealand as the only other competitors.
“It is offering some real opportunities for us, even with a very strong dollar, because there aren’t many countries that can take advantage of this,” she said.
The US drought was covering 40pc of its herd, restricting its ability to rebuild.
Ms Voss said if the US drought was to break, the US Department of Agriculture was tipping a 500,000t drop in US beef production – a drop in the ocean there, but about a quarter of Australia’s annual production (at 2.1m tonnes in 2010).
This drop in US production would occur via cattle already finished in feedlots as an outlet for the drought, or cows withheld to rebuild.
Corn prices were also having an impact on US beef production, limiting rebuilding even before the drought, Ms Voss said.
“This year for the first time the expectation is more corn will go into ethanol than feed,” she said.
Australia, therefore, was well positioned to take advantage of an increased EU quota.
