Beef and veal: September quarter 2021

Jonathan Wong

Average saleyard prices to rise with continued herd rebuilding

Average saleyard prices in 2021–22 are forecast to rise by 12% to 702c per kg. Favourable weather conditions are expected to give farmers the confidence to continue herd rebuilding in 2021–22. Young cattle prices have pushed heavier cattle prices upwards. The momentum of price rises to August 2021 will keep prices high for the rest of 2021. However, buyers are unlikely to sustain current historically high purchase prices for the remainder of 2021–22. Rebuilding means that more cattle are likely to be available to markets in 2022, easing supply pressure on prices. Beef export prices are expected to rise slightly but less than saleyard prices. This will place additional pressure on processors. Demand in key export markets is expected to stay strong, and tight supply will keep export prices slightly higher.

Trade steer prices are forecast to increase by 5% year-on-year in 2021–22 to 841c per kg. Record prices in August 2021 have been driven by herd rebuilding, with trade steer prices increasing more than heavy steer or medium cow prices. As rebuilding pressures ease in the first half of 2022, trade steer prices are consequently expected to record the biggest relative fall of the reported cattle indicators. Heavy steer prices will follow a similar pattern, but only increase by 2% year-on-year to 695c per kg. An increased presence of fresh US beef in key North-Asian export markets is likely to limit price rises.

Medium cow prices are forecast to stay relatively steady at 570c per kg. Drought in the United States, historically the biggest market for Australian frozen beef, is likely to result in a larger share of cows slaughtered. This will prevent prices from rising significantly. At the same time, reduced exports from Brazil will prevent prices from falling significantly.

Restocking demand to slow and global demand to remain strong

High rainfall and consequent pasture growth are expected to continue in most of eastern Australia in 2021–22. Stock rebuilding pressures will also continue during the remainder of 2021 and ease in the first half of 2022. Australia’s exports are forecast to rise by 3.4% to almost $1.1 billion in 2021–22, with a small increase in export volumes complemented by a small rise in export prices. The international demand outlook is strong, however high freight costs and reports of refrigerated container shortages may have a small impact on export volumes.

Strong pasture growth forecast to keep cattle prices relatively high

In July 2021 the Bureau of Meteorology announced that the Indian Ocean Dipole was in a negative phase. The chance of exceeding median rainfall is greater than 75% for most of eastern Australia, compared with a 40% or less chance for parts of Western. Despite the risk of waterlogging and minor flooding in some localities, much of eastern and south-eastern Australia are expected to see sustained pasture growth (Map 1). There is also the small possibility of a late La Niña event for summer. More information on weather and climate can be found in Seasonal conditions.

International demand outlook strong

Beef and veal demand in Australia’s key export markets is expected to stay strong. Chinese pork import volumes are expected to slightly decrease but remain relatively high, as the Chinese pig herd appears to recover from African swine fever. However, Chinese beef imports are expected to increase with its economic recovery, albeit at a slower rate than in recent years. This suggests there is limited substitutability between the two proteins, and some resilience for beef demand in the context of an African swine fever recovery.

The United States is expected to continue increasing its presence in premium North-Asian markets following increased beef production (see Global supply below). However, according to Meat & Livestock Australia, the United States, Australia and other beef exporters produce different cuts at different price points, so substitution between products is not always possible. The US drought and subsequent destocking are expected to reduce US demand for imported beef and could also reduce the price received for exports of processing-grade beef.

Domestic production to increase, global supply to be tight

Beef production is forecast to rise by 7.2% to 2,061 kt in 2021–22, with an increase in slaughter and slaughter weights.

Production to rise despite high input prices and labour shortages

Slaughter numbers fell to 6.6 million head in 2020–21, the lowest since 1971–72 (see Figure 2). These numbers are forecast to slightly increase in 2021–22 to almost 7 million head as cattle availability increases. Slaughter volumes are forecast to be limited by the high price and availability of cattle and the availability of labour for processors.

In the 12 months to 30 June 2021, only a limited number of market-ready cattle were available due to a low national heard size and producers opting to fatten young cattle on plentiful pasture. This has also driven up the prices of slaughter-ready cattle to record highs. More cattle are expected to become available from 2022 as the effects of herd rebuilding become more apparent.

The Australian Meat Industry Council’s recent member survey showed that 65% of processors were operating at 80% or lower capacity. Additionally, 59% of respondents cited a lack of skilled labour as the reason for workforce shortages, with 23% citing the lack of visa and international workers. Additionally, there are concerns about the ability to return to higher capacity as processors do not have the workers to draw on. The Australian Government recently announced a new Agricultural Worker Visa to address the shortfall.

These shortages are unlikely to change significantly through 2021–22 and are likely to impact production volumes. The Australian Government recently announced the new Agriculture Worker Visa program in response to workforce shortages across Australian agricultural sectors.

Global prices to remain strong as South American shortfalls offset record US production

Brazil’s beef production is forecast to fall by 5% to 9,550 kt in 2021 due to limited cattle availability. Brazil recently suspended export to China, its biggest export destination, after detecting two cases of atypical bovine spongiform encephalopathy (BSE). A detection in 2019 saw access restored after just two weeks and exports continued strongly in the following years. This suggests the detection did not impact the preferences of Chinese consumers. It is possible the September 2021 suspension will lift in a similarly short time frame, with minimal effects on beef markets over the 2021-22 fiscal year. Brazil’s notifications can be read at the OIE website.

Argentina has also implemented restrictions on certain beef exports amidst concerns over domestic beef prices, particularly beef that would have gone to China. High freight costs and limited refrigerated container availability may also have a small impact on South American beef exports.

The US Department of Agriculture has forecast 2021 as a record year for beef production. Drought in key cattle-producing areas in western and central United States is leading to destocking and an increase in production. The ability to export greater quantities of beef at cheaper prices than Australia is likely to increase US market share in premium Asian markets.

Live exports face subdued demand

High saleyard prices of young Australian cattle and reduced demand led to a fall in both the value of live exports (down by 24% to $1.2 billion) and the volume (down by 37% to 777,000 head). High prices and limited availability resulted in some cattle that would usually have been sent for live export being diverted to domestic markets. Cattle available for live export were so expensive that it was not profitable for many international feedlotters to import them into countries where incomes had suffered in the economic downturn associated with COVID-19.

Forecasts for 2021–22 are similar, with reduced demand in South-East Asia and ongoing high cattle prices in Australia keeping exports at the same level as 2020-21. The impacts of COVID-19 and associated restrictions have suppressed demand in Indonesia and Vietnam, our biggest markets. Consumers in these countries have faced economic hardship, and meagre cash reserves are likely to have already been spent. Festivals typically associated with peak annual beef consumption have been restricted to a much smaller scale and, in many cases, a cheaper protein menu. Rumours of South American cattle being exported to Indonesia do not appear to have eventuated, possibly due to high transaction costs and low demand. However, there has been a shipment of live cattle from Brazil to Vietnam planned to arrive in late September 2021.

A wet outlook and plentiful pasture for most of eastern Australia suggest availability will continue to be limited for at least the remainder of 2021. Young cattle availability is likely to increase in 2022 as rebuilding and prices ease in Australia. Easing cattle prices and a similar level of export volumes are likely to result in a slightly lower value for live cattle exports.

Opportunities and challenges

Skilled labour shortages may constrain future production

Skilled labour shortages in the meat processing industry have been exacerbated by border restrictions associated with COVID-19. The cattle herd is recovering from a 30-year low, and processing volumes are accordingly low.

The processing industry relies on visa holders and recent migrants to make up its workforce and is therefore subject to the current cap on international arrivals in Australia. To take advantage of a larger herd in the future, the processing industry will have to ensure that it has sufficient skilled labour.

US beef exports may present challenge to Australian exporters

Reduced Australian beef exports are leaving gaps in traditional markets. The United States is increasing its export volumes and export footprint in premium North-Asian markets. This could present a challenge for Australian exporters, particularly in Japan and Korea, which are smaller markets than China. Current US production levels have been achieved through destocking in response to drought, which is unlikely to be sustainable. Australian exporters may be able to increase their presence in these markets in the future if they have the export capacity to meet demand.

Australia–United Kingdom Free Trade Agreement presents opportunity for exporters

The proposed Australia–United Kingdom Free Trade Agreement will gradually increase the amount of beef that can be exported to the United Kingdom under a duty-free quota. In recent years, the United Kingdom has been a small but high-value destination for Australian beef. It is likely to become a bigger market in coming years, but it is unlikely to displace significant export volumes from other high-value markets with established importer and exporter relationships. Learn more about the Australia–United Kingdom Free Trade Agreement.

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