The Australian beef industry is on the cusp of great things, according to agricultural lender Rabobank.
Key fundamentals for a strong Australian beef sector – consisting of strong international demand, constrained global supply, a depreciating dollar and trade agreements – are falling into place.
In a recently released report entitled The Australian beef industry – on the cusp of great things’, Rabobank says an improvement in the weather and drought-breaking rains through many cattle-producing regions would provide that necessary relief for many producers and allow the herd rebuilding process to begin.
Report author, Rabobank senior animal proteins analyst Angus Gidley-Baird says the Australian beef industry has long been exposed to the supply and demand fluctuations experienced by global drivers and local seasonal conditions.
“While depressed prices have been driven by short-term high domestic supply, the Australian industry is now in a position to capitalise on strong global demand, providing an opportunity to develop an industry with a premium, value-added product,” he says.
“This would ensure a more stable, long-term environment for the Australian beef industry.”
Record slaughter numbers have enabled the industry to tap into growing and lucrative export markets. However, production at this rate – given the herd size – is not sustainable.
The Rabobank report indicates that Australian slaughter rates above eight million head and live exports over one million head cannot continue, given estimated herd numbers.
“The Australian breeding herd is not being replaced and this will lead to an increasingly rapid reduction in cattle inventory and future production capacity,” says Gidley-Baird.
Gidley-Baird says China exploded onto the Australian beef export scene in 2013 and, while the same growth has not been evident in 2014 and into the start of 2015, over the longer term, it has the potential to become one of Australia’s top two beef trading partners, ahead of Japan and Korea.
Chinese sales of beef and veal are currently experiencing the strongest growth of any meat, at 4.8 percent (CAGR from 1996 to 2014). Rabobank expects the growth in consumption to decline slightly, to 2.2 percent (CAGR over the next decade), due to a slowing of the economy, although it is still expected to grow faster than other meats.
Adding to the prospects for the Chinese market of becoming Australia’s most important trade destination is the free trade agreement waiting in the wings, says Gidley-Baird.
Rabobakn forecasts that, based on the strength in global markets, the Australian Eastern Young Cattle Indicator (EYCI) price will trade in the range of A$5 per kg to A$6/kg for the next 12 to 24 months.