"The forecast for record high exports is underpinned by historically high production and slaughter due to extreme drought conditions," the US official said.

He said the outlook for pasture conditions has been labelled as "difficult" in the short term, with significant improvements not expected until the second half of the crop year.

"Despite prolonged drought conditions, prices have remained high, keeping cattle numbers at historically high levels," the attache said.

Near record cattle-on-feed numbers indicate strong exports to Australia's two primary grain fed markets, Japan and Korea.

Exports of beef to Japan remained fairly steady in 2006; exports to Korea increased 20 per cent and now represent 16 per cent of total Australian beef exports.

"Livestock prices have remained relatively strong considering the extreme drought conditions recently experienced and this has maintained a degree of commercial optimism among industry sources outside the farm sector," the attache's report said.

"Structural changes over the past two decades, such as domestic grain market deregulation; high levels of investment in lot feeding and processing; and on farm advances in genetics, fodder management, and marketing have largely resulted in

Source: News.co.au