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USDA GAIN: Livestock and Products


22 March 2012

USDA GAIN: Australia Livestock & Products Semi-annualUSDA GAIN: Australia Livestock & Products Semi-annual

Australian beef production in CY 2012 is forecast at a record 2.2 million tons, slightly higher than the previous record set in CY 2006. Exports are also forecast to increase in CY 2012, albeit at a slower rate than production. Widespread, heavy rainfall and scattered reports of record flooding, have seen pasture and fodder production increase sharply during CY 2011. Post’s forecast for the CY 2012 closing inventory was revised upwards to 30.0 million head, the highest level since 1976.

USDA GAIN: Livestock and Products

Beef and Veal

Inventory

Closing inventory for CY 2012 is forecast at 30.0 million head, up significantly on Post’s previous forecast and Australia’s highest inventory since 1976. CY 2011 inventory was also revised upward, to an estimated 28.8 million head, in line with the preliminary estimate recently released by the Australian Bureau of Statistics (ABS).

Widespread rainfall during CY 2010 and CY 2011 has promoted excellent pasture growth and greatly improved fodder supplies. Assuming average weather conditions, cattle numbers are expected to continue to grow beyond the forecast period and into CY 2013.

Recent media reports quote the eastern young cattle indicator (EYCI) at a record high price and this, combined with greatly improved feed supply, have provided almost unprecedented confidence among beef cattle producers.

Going forward, the only major threat to increasing cattle inventory is perhaps drier than average weather conditions in the second half of CY 2012.

Slaughter

Post’s forecast for CY 2012 total slaughter was revised downward (4%), and the CY 2011 estimate reduced (4%) to 7.95 million head. Greatly improved feed supplies for CY 2011 and into CY 2012 has enabled producers to withhold stock from sale to take advantage of perhaps “once in a lifetime” production and fattening opportunities. To a lesser extent, this reduction has also been driven by logistical constrains caused by wet weather and flooding.

DataWidespread heavy rainfall and flooding in eastern Australia during CY 2011 and into CY 2012 have somewhat disrupted the supply of cattle for sale and slaughter placing downwards pressure on slaughter numbers.

Going forward, Post expects slaughter to remain at historically low levels (beyond the forecast period). However, drier than average conditions, particularly in the second half of CY 2012 would likely see slaughter surpass current expectations.

Production

Total Australian beef and veal production for CY 2012 is forecast at a record 2,200 TMT (2.2MMT), up on the revised estimate for the previous year and up on Post’s previous report. The previous production record of 2,188 TMT was set in 2005/06 (Jul-Jun) according to the Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES) historical data.

Greatly improved average carcass weight (believed to be at record levels), due to improved seasonal conditions, is expected to push production to record levels in CY 2012 despite lower slaughter levels.

Exports

Total beef and veal exports for CY 2012 are forecast at 1,405 TMT, up on Post’s previous forecast and up on the revised figure for the previous year. This forecast, falls just short of the all time record achieved in CY 2009, and the previous record in CY 2001.

The forecast increase in beef exports for CY 2012 is primarily driven by increased production as a result of improved seasonal conditions and record carcass weights, and not necessarily due to increased export demand or current prices.

Prices received for young cattle are currently at record levels, due to very strong “restocker” demand driven by a sharp increase in pasture and fodder supplies. However, export indicator prices for beef are currently around ten percent lower than for the same period in the previous year.

Industry sources suggest that the combined effects of a very strong Australian dollar and high domestic live cattle prices have seen a decline in Australia’s competitiveness in key export markets such as Japan and Korea, and this is expected to continue to limit trade volumes for the remainder of CY 2012.

Live Cattle Exports

Live cattle exports for CY 2012 are forecast at 700,000 head, unchanged from Post’s previous report. The live export estimate for CY 2011 has been revised upwards significantly to 694,000 head.

Live cattle exports to Indonesia were temporarily banned on June 8, 2011 following a much publicized TV report on practices employed by some Indonesian slaughter facilities. Indonesia (Australia’s largest single market for live cattle exports) traditionally accounts for over half of total live exports and is relied upon as a primary driver of live cattle prices in northern Australia. The live cattle trade with Indonesia resumed in the second half of CY 2011. Monthly exports increased sharply following the resumption of trade and this has led post to revise upward the estimate for CY2011 total live cattle exports. The effect of the ban during the months of June and July can be clearly seen on the graph below.

The Australian government, combined with the industry body (Meat and Livestock Australia), have since implemented new welfare standards designed to eliminate animal cruelty. However, at time of writing this report, Press allegations of cruelty continue to persist.

The temporary ban caused considerable concern and economic losses for cattle producers in northern Australia who, due to their remote location, rely heavily on the live export trade with Indonesia. One misconception which continues to persist in Australian media is that cattle in the live shipping zone of northern Australia can be readily shipped south for processing, eliminating welfare issues and boosting Australian jobs. At the March 2012 Outlook Conference hosted by ABARES, panel members demonstrated that Australian live cattle ports remain closer to South-East Asian markets than to southern Australian processing plants and that to process cattle in remote locations in Australia is simply not viable. Furthermore, the specifications of the northern Australian cattle typically exported live are not appropriate for the more developed markets serviced by the traditional southern Australian processing plants.

Perhaps of more concern to Australian live cattle exporters over the longer term will be Indonesia’s plans to move toward self sufficiency, which will effectively limit the importation of live cattle from Australia.

Lot Feeding

Until recently, Australian cattle feedlots were stocked at levels well below capacity. During CY 2010 and CY 2011, high feed grain prices and high live cattle prices greatly constrained the number of cattle on feed. More recently, however, feed grain prices have fallen sharply with domestic feed grain availability perhaps at a record high. This is expected to provide some upward movement in numbers of cattle on feed over the longer term. Young cattle prices remain at record levels and this, combined with competition from excellent pasture conditions, should prevent cattle on feed numbers from recovering sharply.

Pork

Production

Total Australian pig meat production is forecast to increase to 350 TMT in CY 2012, supported by a higher supply of slaughter stock and slightly increased carcass weights. Record high grain production and a recent slump in domestic feed grain prices are expected to boost pig meat production in CY 2012.

The recent sharp increase in feed grain supply and slump in feed prices, which account for nearly two thirds of the cost of production, follow a nearly decade long drought which created record low grain inventories and record high feed grain prices. Post expects the sharp increase in feed grain supply to extend beyond the CY 2012 period and should see Australian pig meat production continue to increase beyond the forecast period.

Imports

Total pork imports are forecast at 175,000 MT (CWE) in CY 2012, unchanged from the estimate for the previous year. Imports have grown significantly over the past decade, assisted by falling domestic production (due to drought) and a steadily rising Australian dollar value.

Source: WTA DataPost expects the Australian dollar to remain at historically high levels for the remainder of CY 2012 and this should maintain imports at similarly high levels. However, increased domestic production should constrain further growth in imports in the near future.

In 2011, the U.S. regained its position as the largest supplier of pig meat to Australia. A fall in the U.S. currency value relative to Australia (and to other pig meat suppliers) is believed to have improved the competativeness of pig meat imports from the US.

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