Beef and veal: March quarter 2021

Jonathan Wong

Australian cattle prices to fall during the outlook period.

Cattle prices to fall, in line with global beef prices

Average saleyard prices are forecast to fall from 593 cents/kg in 2020–21 to 552 cents/kg in 2021–22. Cattle prices continue to be supported by competition between processors and farmers looking to restock. Prices are expected to stabilise in the first half of 2021 before trending down through 2021–22.

Beef and live cattle exports are likely to rise slightly in 2021–22. Herd rebuilding is expected to slow, leading to an increase in cattle availability and lowera domestic cattle prices. This will make Australian beef and cattle exports marginally more competitive in world markets.

Outlook

Average saleyard prices are forecast to continue falling to 461 cents/kg in 2025–26. This fall will be driven by greater domestic cattle availability in the short term and lower global beef prices through the outlook period. Lower global beef prices will be influenced by different factors in the short and medium term. In the short term, high US and Brazilian exports and a low Brazilian real are expected to reduce global beef prices. In the medium term, the ongoing recovery of the Chinese pig herd is likely to ease global demand for protein, putting downward pressure on meat prices. Live exports are forecast to gradually increase through the outlook period as prices for young cattle fall.

 

Medium-term scenarios for forecasts

Medium-term forecasts from 2022–23 to 2025–26 for Australian beef and cattle are based on the average outcomes of 4 possible seasonal climate scenarios. A very dry season in the wheat–sheep zone is likely to occur in one of the 4 years. Each scenario places this dry season in a different year, with other years assumed to receive rainfall of around deciles 3 to 4. For a more detailed explanation see the Agricultural overview.

The range of outcomes forecast to result from each scenario are then averaged. Unless otherwise indicated, these average forecasts – or their ranges – are discussed in this note.

Upside and downside scenarios are also considered. The upside scenario combines a faster economic recovery from the COVID-19 pandemic with another high rainfall year in 2021–22. A very dry year is still assumed in 2022–23. Because it follows an assumed wetter year, negative effects on production are reduced. The downside scenario combines a slower than expected economic recovery with very dry years in 2021–22 and 2025–26.

Stronger competition and Chinese pork recovery underpin all scenarios

For all scenarios, the Brazilian real is assumed to remain weaker than the Australian dollar through the outlook period, and China's pork industry is assumed to continue to recover from African swine fever (ASF). Chinese pork production is expected to return to – and then exceed – pre-ASF levels over the next 5 years. Industry consolidation and improved biosecurity arrangements are likely to deliver significant productivity gains. This is expected to reduce China's import demand for protein and place downward pressure on global beef prices over the outlook period.

Medium-term forecast – an uneven global economic recovery

In the short term to 2022–23, the United States and Brazil are expected to continue to increase beef exports to high-value markets – notably China. US herd contraction is slowing, with cyclical rebuilding likely to start in 2022–23. This will slightly reduce US beef production and exports. It is also likely to increase beef prices (especially for chilled beef) in Australia's main export markets, in which Australia and the United States compete. An increasing Brazilian cattle herd and a weak real suggest Brazilian beef exports will continue to maintain a significant presence in global beef markets through the outlook period.

US herd projections, 2019 to 2026
US herd projections steady through 2021 and 2022,  then decrease sharply to 2023 before a steady increase from 2023 to 2026.
y US Department of Agriculture projection.
Source: US Department of Agriculture

Ongoing competition between processors and farmers looking to restock is expected to keep Australian cattle prices relatively high through 2021, easing in the latter part of 2021 and 2022 due to slowing restocking activity.

Soil moisture from a wet 2020–21 is expected to provide above average pasture growth in 2021–22 despite a likely end to La Niña conditions. Low grain prices and the accumulation of feed are expected to enable farmers to continue restocking in the short term. This will result in more cattle available for slaughter later in the outlook period, increasing production and exports from their current lows.

A slightly lower Australian dollar and reduced US beef supply from 2022–23 are likely to make Australian beef more competitive. The post-ASF recovery of Chinese pork production is expected to keep global beef prices trending downwards from historic highs.

Weighted average saleyard price, 2000–01 to 2025–26

Average saleyard price to decline over the outlook period in each of the baseline, upside and downside scenarios.

f ABARES forecast. z ABARES projection.
Sources: ABARES; ABS; Meat & Livestock Australia

Live exports to recover through the outlook period

Live exports are forecast to gradually increase over the outlook period, from a low base in 2020–21. During 2020–21 high prices for young cattle in southern Australia have resulted in young cattle being diverted from live export to restocking, as farmers capitalise on increased feed availability. As a result, high prices have made it difficult for many Indonesian feedlotters to import Australian cattle. Australian cattle prices are forecast to stay relatively high through 2021, decreasing towards the end of the year. Live exports are expected to recover as restocking demand eases and prices decline.

Upside scenario – favourable conditions see a larger herd

A faster global economic recovery is likely to result in beef prices staying higher for longer than the forecast. Restaurants and the food services sector are likely to adapt faster, with global travel expected to recover more quickly. This would increase global demand for chilled and frozen beef products. However, the effect of this increased demand on prices will be at least partially moderated by China's slowing import demand over the outlook period.

Consecutive years of favourable seasonal conditions in Australia during 2020–21 and 2021–22 are assumed to facilitate prolonged herd rebuilding. Pasture and feed accumulation are expected to be sufficient to sustain herds through a dry 2022–23, noting that herd numbers will still be recovering from relatively low levels. This would mean the size of the national herd is larger than the forecast by the end of the projection period in 2025–26.

Australia's herd rebuilding would lead to higher expected production and exports from 2022–23 as more cattle become available. Prices would be higher than the forecast due to stronger global demand but impacts on exports will be partly offset by a stronger Australian dollar.

In this scenario, live exports recover from the lows of 2020–21 but the recovery is slower than the forecast. Prolonged herd rebuilding would keep young cattle prices higher, which would likely result in higher prices for exported light steers.

Beef herd size, 2000–01 to 2025–26
Beef herd size to be higher than baseline in upside scenario, and lower than baseline in downside scenario.
f ABARES forecast. z ABARES projection.
Sources: ABARES; ABS

Downside scenario – drier seasons see lower herd, lower cattle prices

Ongoing COVID-19 outbreaks and subsequent lockdowns would see lower demand for beef than in the forecast, with prices falling slightly faster from historic highs. Lower consumer confidence, travel and economic growth are expected to contribute to lower demand over the outlook period, especially for high-value cuts of beef. This fall in demand is likely to be tempered by increasing competitiveness from a weaker dollar, especially as falling US beef supply puts upward pressure on prices in the latter half of the outlook period.

In this scenario, a dry 2021–22 is expected to be largely offset by soil moisture and feed accumulation from La Niña–induced rainfall in 2020–21. Nonetheless, this climate scenario is expected to slow or stop herd rebuilding momentum. After several average rainfall years, a dry 2025–26 would be expected to result in increased slaughter rates as feed availability declines and the price of feed increases. This would lead to higher beef production and export volumes late in the outlook period compared to the forecast.

Beef and veal production, 2000–01 to 2025–26
Production to increase in upside and downside scenarios. Production to increase at a lower rate in baseline scenario.
Note: In the upside scenario, the difference in production relative to the forecast is driven by larger herd numbers. In the downside scenario, the difference is driven by lower feed availability and a slightly lower Australian dollar.
 f ABARES forecast. z ABARES projection.
Sources: ABARES; ABS

Opportunities and challenges

Chinese pork production recovery

The rate of China's recovery from ASF is likely to have an impact on global beef prices. A rapid recovery may push protein prices below their pre-ASF levels, leading to downward pressure on global beef prices and presenting a challenge for beef exporters. However, such a recovery is contingent on China's ability to source sufficient feed for its pork (and other meat) production. A slower recovery would likely keep protein prices relatively higher for longer, presenting an opportunity to beef exporters. Stronger Chinese feed demand may also indirectly impact global cattle prices.

Social licence

Navigating social licence is both an opportunity and a challenge for the beef and cattle industry, especially for the live export industry. To capture value opportunities, producers and processors will need to remain responsive to evolving consumer preferences. Adhering to high environmental and animal welfare standards is likely to become even more important if producers are to retain social licence to produce and to benefit from premiums derived from these management practices.

Competition in live cattle markets

The high price of Australian cattle is proving to be a challenge for countries importing Australian cattle, with many feedlotters in Australia's export markets being priced out of the market. There have been reports of Indonesia looking to Brazil and Mexico as an alternative cattle source, but it is unclear how long it will be before cattle can arrive in Indonesian feedlots. The logistical challenge of transporting cattle so far on a regular basis remains an obstacle. Australian cattle are therefore likely to regain their competitiveness as young cattle prices fall. The size of the South-East Asian market means that a large amount of cattle would have to be imported on an ongoing basis for Australian exporters to see substantial negative price impacts.

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Agricultural commodities: March quarter 2021 - Report PDF 80 8.04 MB
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Last reviewed: 1 March 2021
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