What is the Australian cattle market going to look like in five years’ time? A question that would be on most producers’ minds as they turn to rebuilding their herd. With cattle still at extremely high prices – some of the most expensive in the world – this question is even more pertinent given what that investment will look like in five years’ time.
Rabobank recently published a report for clients on the outlook for the Australian cattle market out to 2020. Looking at a number of factors that will influence the position of the industry, the outlook is positive about the future cattle prices – recognising that we are currently at record levels that are unsustainable and will need to adjust down.
A factor that will sustain prices into the future will be the herd rebuilding process and general shortage of cattle in the Australian industry at the moment. Historically the liquidation of cattle as a result of dry seasons has been the major contributor to a decline in prices. Without such cattle available to flood the market, prices are expected to remain firm.
At the same time, however, the global production of beef and animal protein more generally will limit the upside for prices. Brazil and the US are expected to continue to increase their production and therefore competition in the global market will remain strong and specifically in the US, likely to see weaker imported prices for Australian beef. Furthermore the production and cost advantages of other proteins – such as chicken, pork and aquaculture – will continue to mean pressure at the retail end, competing for the consumer dollar, will also remain strong.
Global trade is becoming more complex. We have seen Brazil regain official access to China and more recently access to the US. There have been reports of the US regaining access directly into China. Australia’s access into these strong markets is now facing increased competition. Trade agreements do provide advantages competing in these markets and need to continue to be pursued. However, trade agreements cannot replace market competitiveness – for example, the current 2.4 per cent tariff advantage Australia has over Brazil sending beef to China does not overcome the 73 cent per kilogram difference in prices.
Beyond the industry itself, the value of the Australian dollar will continue to have a major effect.
Rabobank expects cattle prices out to 2020 to be higher than the previous five-year average. The rebuilding process provides the opportunities to secure and develop a product that will support future growth in our beef markets.
- Angus Gidley-Baird is a senior analyst at Rabobank.