Beef and veal: June quarter 2020
Jenny Eather
Prices to remain high, reflecting tight supply
The average saleyard price of steers and cows is forecast to increase by 4% in 2020–21 to 556 cents per kilogram. Saleyard prices are expected to remain high in 2020–21, reflecting lower turn-off from a smaller national herd and high demand from restockers. Global demand is expected to remain robust in the short term. However, the COVID-19 pandemic has increased uncertainty in export markets.
Improved production conditions in early 2020
Most beef-producing regions in Australia were severely affected by 2 years of drought. Since February, widespread and above average rainfall has led to rapid pasture growth, particularly in the south-east.
The AussieGRASS pasture growth model shows that as at 30 May 2020, total standing dry matter (an indication of pasture availability) was at well above average or extremely high levels in much of south-east Australia. This is in stark contrast to the extremely low levels in most beef-producing regions at the end of January. The model is predicting above average pasture growth over winter for most of the eastern seaboard, particularly in Queensland.
In contrast, producers in the west and tropical north are yet to experience much improvement in production conditions after a drier than average wet season in 2019–20. According to the NT Department of Primary Industries Pastoral feed outlook for April 2020, most districts experienced below average to extremely low pasture growth for the 2019–20 growing season. Improved rainfall and pasture growth during the second half of the northern wet season (February to April), was not sufficient to restore pastures to average levels in many regions. Winter is typically a period of low rainfall and pasture growth, so a recovery in pasture biomass will require a more favourable monsoon in the summer of 2020–21.
Production to fall in 2020–21 as herd rebuilding commences
Beef production is forecast to fall by 17% in 2020–21 to 1.9 million tonnes, compared with a forecast 2.3 million tonnes in 2019–20.
Slaughter began to slow in February 2020, falling by an average of 7% year-on-year between February and April. Results from the Meat & Livestock Australia eastern states slaughter survey indicate this trend continued in May. Lower slaughter was partially offset by high average slaughter weights. This reflects the high number of animals in feedlots and a declining share of females.
The Australian beef cattle herd is forecast to move into a period of gradual restocking to reach 21.5 million head by June 2021. By the end of 2019–20, the Australian beef herd is estimated to fall to 21.1 million, the smallest recorded since 1989–90. A smaller breeding herd, combined with strong competition between restockers, processors and feedlotters, will constrain production and exports over the short term.
The rapid improvement in production conditions in much of southern and eastern Australia in early 2020 has encouraged many producers to consider restocking, and led to strong livestock prices. For example, the Eastern Young Cattle Indicator increased rapidly in early 2020, reaching 766 cents per kilogram (carcase weight) by mid-March, compared with an average of around 506 cents per kilogram in the first half of 2019–20.
The proportion of females in total slaughter has been elevated since 2018 due to drought-related destocking, but numbers have moderated in recent months. High rates of female slaughter mean a smaller future breeding herd and production potential. After averaging 56% in 2019, female slaughter rates fell to an average of 52% in the first 3 months of 2020. Female slaughter rates lower than around 47% indicate herd rebuilding is taking place.
In Queensland, female slaughter rates averaged 44% between January and May. In New South Wales, female slaughter fell in recent months, but as of the end of May was yet to show a clear trend towards rebuilding. Female slaughter rates are expected to continue to fall throughout 2020 as herd rebuilding gains momentum. However, the high price of restocker animals and limited cash flow after years of drought will limit the pace of rebuilding for some producers.
Export value to moderate from historic highs
The volume of beef exports is forecast to fall by 22% in 2020–21 to 995,000 tonnes, in line with the forecast fall in production (see Agricultural trade implications, vol. 9). However, expected increases in export prices mean that the total value of beef and veal exports is forecast to fall by 19%, to $8.9 billion. Exports to all major markets are forecast to fall in 2020–21. However, falls in exports to China and the United States are expected to be larger in percentage terms than to the Republic of Korea and Japan.
The value of Australian beef exports is forecast to reach a record $11.0 billion in 2019–20, as a result of high drought-related turn-off and high global prices. The value of exports reached historic highs in the first 9 months of 2019–20, increasing by 26% compared with the same period last year. This was a result of higher volumes (up 10% year-on-year) and higher average export unit values (up 14%). The ongoing shortage of protein as a result of outbreaks of African swine fever in China has supported global beef prices.
Data to March 2020, indicates that the overall impact of COVID-19 on Australia's beef exports has been small. Disruptions were evident in some markets during the first quarter of 2020, but both the volume and value of exports rose year-on-year. Average export unit values were 5% higher in the first quarter of 2020 compared with the previous quarter, and 16% higher than the same quarter last year. This was partly the result of a lower Australian dollar, which depreciated sharply in March. Exports of high-value products normally destined for foreign food service channels were disproportionately affected early in the pandemic. This supply chain was supported by the international freight assistance mechanism.
The volume of beef exports to China is expected to reach 324,000 tonnes in 2019–20, up from 228,000 tonnes last year. Beef exports to China defied the usual seasonal pattern, falling between January and February as a result of COVID-19–related disruptions. Sales of chilled beef remained strong, but frozen exports fell by 22% in February month-on-month, and by 16% year-on-year. This relatively large fall in frozen exports to China may reflect an accumulation in inventories in January due to lower than anticipated demand during the Chinese Lunar New Year. Exports to China recovered somewhat in March (by 9% month-on-month), but were still lower than would have been expected without COVID-19.
Exports to the United States are forecast to reach 226,000 tonnes in 2019–20, 6% lower than 2018–19. Exports to the United States were also lower than expected in March, falling by 23% year-on-year after strong export demand in January and February. Forward indicators suggest that export volumes to the United States fell again in April. Demand from the United States was affected by closures in the food service sector, where much of the frozen beef exported by Australia is used in hamburger patties. It is likely that demand has also been limited by disruptions to meat processing capacity in the United States. Australian beef is relatively lean, and post-import processing in the United States often involves combining it with fattier trimmings sourced domestically.
Export volumes to other major markets such as Japan and Korea remained relatively unaffected by extensive COVID-19–related restrictions in both countries, with retail sales remaining relatively strong.
Average export prices are expected to rise slightly in 2020–21. The impact of African swine fever in Asia has increased demand for substitutes like Australian beef, a situation that is likely to persist for several years. This is expected to more than offset downward pressure on demand for high-value cuts due to restrictions on restaurants and falling household incomes in the wake of the COVID-19 pandemic. The Australian dollar also regained some of its lost value in April but is expected to remain lower than pre‑COVID‑19 levels, improving the competitiveness of Australian beef on world markets.
Live export
The volume of live feeder and slaughter cattle exports reached record levels in the first 9 months of 2019–20, increasing by 13% compared with the same period in 2018–19. Live exports are forecast to fall by 25% in 2020–21 to around 900,000 head. This reflects tighter domestic supply and falling demand as responses to COVID-19 reduce household incomes in importing countries such as Indonesia. On balance, average export prices are expected to increase slightly as the effect of tightening supplies more than offsets falling demand. This forecast depends on the uncertain duration and severity of COVID-19 impacts on demand.
The Australian live cattle industry relies heavily on demand from Indonesia , its largest market (see Agricultural trade implications, vol. 7). Prices for Australian live cattle sold to Indonesian buyers fell by about a third between mid-March and mid-April. This was largely a result of COVID-19 disruptions decreasing expected returns to Indonesian feedlotters. The Indonesian rupiah fell to its lowest level in 20 years. The demand outlook remains weak as a result of falling incomes and government restrictions on travel and gatherings.
Indonesian consumers are substituting away from wet markets towards buying imported boxed beef through supermarkets or online platforms. These products are often sourced from Australia. This trend has also dampened the outlook for feedlotters importing live cattle from Australia. The fall in live cattle exports to Indonesia in the first 9 months of 2019–20 was more than offset by growth in our second most important market, Vietnam—a country that has had considerable success in managing the spread of COVID-19.
Opportunities and challenges
Benefits if Australia can control COVID-19
Outbreaks of COVID-19 have affected meat production and exports in some major producing countries around the world, including the United States, Brazil and India. In the United States, widespread outbreaks in meat processing facilities led to cattle slaughter falling by more than 30% between March and April. This reduction in capacity led to a surge in US beef prices and a fall in cattle prices. If Australia is able to maintain low levels of community transmission and keep supply chains functioning efficiently, Australian beef producers may benefit from temporary supply disruptions in competing nations. It could also help Australia build its reputation as a reliable supplier of quality meat.
Changes in consumer preferences
A major challenge facing the beef industry is reduced demand for high-quality cuts, as a result of disruptions to the food service and tourism industries, and lower household incomes. However, changes in consumer preferences in response to COVID-19 may benefit sales of Australian beef. For example, Chinese consumers have been substituting away from wet markets towards large supermarkets and online sales—distribution channels that favour Australian beef.
The same consumer trend is evident in Indonesia, but this is leading to an increase in demand for Australian boxed beef, and a decrease in demand for Australian live exports. In 2018 Australia accounted for 42% of Indonesian beef imports (by value and volume), despite intense competition from cost-competitive Indian carabeef. Australian beef is typically sold in supermarkets, food service or hotels. Indian carabeef is typically sold in wet markets, to bakso (meatball) manufacturers or in food service.
Tight profit margins for the feedlotting industry
After reaching a record high number of animals in feedlots at the end of 2019, the number of animals on feed fell by 12% in the March quarter of 2020. Rapid pasture growth in the autumn of 2020 increased saleyard prices for feedlotters who are competing with restockers for a relatively small supply of animals. At the same time, responses to COVID-19 have increased uncertainty in beef markets, and reduced returns for the high-quality grain-fed cuts favoured by export markets. The number of animals on feed is likely to continue to fall in 2020–21.
Suspension of 4 major abattoirs from the Chinese market
In early May, China suspended 4 major Australian red meat processors from the Chinese market, citing inconsistencies with labelling and consignment certificates. It is unclear how long these suspensions will last.
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