Australia Livestock and Products Semi Annual Report 2009

Conditions facing the Australian cattle and beef industry are mixed. The outlook for CY 2009 points towards reduced slaughter, production and exports as well as lower prices for live cattle, according to the USDA Foreign Agricultural Service.
calendar icon 10 March 2009
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Summary

At time of writing this report, the conditions facing the Australian cattle and beef industry are mixed. The outlook for CY 2009 points towards reduced slaughter, production and exports as well as lower prices for live cattle. Domestic consumption is expected to increase slightly while live exports are expected to fall slightly but otherwise remain firm.

Above-average rainfall in November and December in southern Australia sharply improved pasture conditions and summer fodder production. Some parts of northern Australian experienced widespread flooding in February and this is expected to partially interrupt cattle supply moving forward. As a result of these climatic events, the availability of fodder and pasture is expected to remain higher for much of CY 2009 relative to year previous.

The forecast supply of slaughter cattle is expected to fall in CY 2009 as a result of greatly increased feed supplies and historically low numbers of cattle on feed. Reduced slaughter is expected to cause lower production and lower exports.

Despite low slaughter and production, prices are also expected to remain low for the majority of CY 2009. A lack of export demand in traditional high-end markets such as Japan and Korea is expected to place downward pressure of domestic prices for the foreseeable future.

Closing inventory for CY 2009 is forecast to increase significantly. Low fodder prices and the sharply increased fodder supply, combined with low domestic cattle prices is expected to see inventory grow significantly as producers retain stock rather than slaughter at low prices.

Post expects domestic demand to increase in CY 2009 as a result of lower prices. Industry sources suggest exports to the US are likely to increase in CY 2009 despite downward pressure on exports in other markets. Prices received for grinding beef are expected to benefit from a fall in average incomes worldwide as consumers trade down to cheaper cuts.

The state of Victoria has recently suffered from severe “bush fires”. Good fall of rain in November and December followed by record breaking heat waves created the worst bushfire conditions in Australia’s recorded history. Despite hundred of fatalities and large areas destroyed by fire, post advises that the impact of this event on cattle and beef production to be minor. Much of the area affected was forested.

Post expects the Australian pig meat industry to begin the process of rebuilding following low periods of extremely poor returns and has forecast closing inventories, production and exports to increase in CY 2009.

Cattle

Inventory

Closing inventory for CY 2009 at 28.95 million head representing an increase of nearly 500,000 head on the revised estimate for the previous year. Low prices and significant improvements in fodder and pasture supplies is expected to see stock withheld from slaughter, some for breeding purposes.

Widespread flooding in northern parts of Australia, partic ularly in the state of Queensland, has been widely reported by domestic and international media. Flooding has affected transport for cattle in many remote areas and stemmed the flow of cattle suitable for slaughter. According to industry sources, between 100,000 and 150,000 head of cattle may have been drowned as a result of flooding. Despite these losses, post acknowledges the increased feed supply generated by widespread rainfall and advises that increases in closing inventory will only be partially constrained by these events.

Forecast increases in closing inventory for CY 2009 are contingent upon average weather conditions for CY 2009. A return to drought conditions would likely see slaughter and production surpass forecast levels.

Slaughter

Total slaughter for CY 2009 is forecast to fall to 8.6 million head, down two percent on the 8.79 million head estimated for the previous year. Low prices currently being received for live cattle, combined with increased fodder and pasture supplies, is expected to cause some cattle withheld from slaughter. Official cattle slaughter figures for January shows slaughter numbers falling for the sixth consecutive month.

Forecast slaughter remains below the ten-year-average of 8.8 million head and would represent the lowest level for the past four years.

Australian Cattle Slaughter (million head)

Source: ABARE data (July/June)

Above average rainfall leading into CY 2009 has greatly improved the pasture and fodder supply outlook. Furthermore, regional flooding in northern Australia is likely to interrupt supply of cattle for the first half of CY 2009. Losses from flooding will also constrain slaughter somewhat.

Post advises that forecast slaughter for CY 2009 relies on Australia receiving average rainfall. Below average rainfall, or in the worst case scenario, a return to widespread drought conditions would likely see slaughter surpass current forecasts.

Production

Total beef and veal production for CY 2009 is forecast at 2,100 TMT, representing a three percent decline on the previous year. According to historical data provided by ABARE, this forecast is almost exactly equal to the ten-year-average.

Forecast lower slaughter, combined with a slight reduction in carcass weights will drive this expected decline. Lower cattle prices and improved fodder and pasture supply is expected to see some cattle held back from slaughter, at least for the first half of CY 2009.

Australian Beef Production (TMT)

Source: ABARE data (July-June)

Post’s forecast remains at odds with both MLA and ABARE who have both forecast a slightly increase in production for CY 2009. Post advises however, that, more recently, the outlook has further deteriorated. Industry sources report reduced cattle demand from feedlots and processing plants “working fewer shifts”. Prices for cattle have also fallen recently, despite the devaluation of the Australian dollar. A lower Australian dollar traditionally boosts domestic cattle prices and was expected to underpin forecast increases in production.

Post’s production forecast is contingent upon normal weather conditions, and more importantly, average rainfall. Below average rainfall or a return to drought would likely see production exceed Post’s forecast.

Exports

Total beef and veal exports for CY 2009 are forecast at 1,350 TMT Carcass Weight Equivalent (CWE). This would equate to roughly 964 TMT shipped weight using a conversion factor of 1.4. If achieved, posts forecast would represent a four percent decline of the previous year but remains slightly above the ten-year average.

The primary driver behind falling exports is lower cattle supply due to improved pasture conditions and fodder supply. Recent falls in cattle prices, despite a lower Australian dollar, are also expected to see cattle withheld from slaughter.

Australian Beef Exports (TMT)

Source: ABARE Data (July-June)

Poorer demand in export markets such as Korea and Japan are also expected to see exports to these destinations decline in CY 2009. ABARE recently forecast a four percent decline in exports to Japan for 2009/10, however post sees this forecast as optimistic.

Exports to the US are expected to improve, as poorer economic conditions are expected to lead to increased demand for grinding beef traditionally shipped to this market. The devaluation of the Australian dollar against the US dollar, compared to a year ago, boosts exports to that destination.

Exports to Russia, which recently emerged as a key market, are expected to decline sharply in CY 2009. Poor demand and currency issues have constrained these exports greatly in recent times. A recent review, conducted by Russian Authorities, is expected to see conditions for exports to Australia to become more stringent according to industry sources.

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March 2009

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