Beef and veal: December quarter 2020
Prices forecast to fall from record highs
The average saleyard price of steers and cows is forecast to fall during the remainder of 2020–21 after reaching record highs in the third quarter of 2020. Herd rebuilding has increased domestic demand for cattle as a result of favourable seasonal conditions. Competition from feedlots and farmers seeking to restock in eastern Australia has pushed up prices for young cattle for restocking relative to older cattle for processing. In October 2020, the Eastern Young Cattle Indicator exceeded 800 cents/kg for the first time and is expected to fall in 2021.
The weighted average saleyard price of cattle will average 23% higher in 2020–21, which is higher than previously forecast although it is expected to finish the financial year well below this level. The high price of Australian cattle is forecast to compensate for a decrease in exports, leaving the gross value of production (GVP) only slightly lower than 2019–20 (a nominal GVP record year). This difference between Australian and global prices has put pressure on processors and exporters.
Global demand for beef has been resilient in 2020 during the COVID-19 pandemic, but rising production will slightly reduce global prices for the rest of 2020–21.
Favourable conditions support herd rebuilding
Herd rebuilding has increased domestic demand for cattle following favourable seasonal conditions. High rainfall totals across most of northern and eastern Australia has seen pastures continue to recover after successive dry years. Higher prices in areas that have received substantial rainfall have supported prices in areas with lower rainfall totals – the Western Young Cattle Indicator has followed the Eastern Young Cattle Indicator upwards despite poor pasture growth. The AussieGRASS pasture growth model suggests a high likelihood of above-average pasture growth to January 2021 across eastern Australia and far northern Australia. Pasture growth is expected to be median or below median for Western Australia, central Australia and much of Tasmania.
Herd rebuilding underway
Falling female slaughter rates and the premium prices for young cattle compared with heavy steer prices suggest herd rebuilding is underway. Female slaughter rates have been well above the traditional 47% rebuild benchmark for 31 consecutive months – the longest period since 1976, when the Australian Bureau of Statistics began collecting this data. Female slaughter rates have been declining since May and are expected to continue trending downwards. The high price of young cattle relative to heavy steers confirms that producers are capitalising on feed and water availability to restock, and they are expected to continue to do so in the short to medium term.
Slaughter volumes to continue downward trend
Slaughter numbers have continued to trend downwards in 2020 as production conditions have improved. The limited availability of slaughter-ready cattle has pushed saleyard prices to record levels and reduced processing margins. COVID-19 outbreaks in Victorian abattoirs appear to have had minimal impact on national production volumes to date, although additional preventative health and safety protocols have increased production costs. Production for 2020–21 is expected to continue its decline, steadying into 2021. Average carcase weights are set to increase slightly due to lower female slaughter rates and greater feed availability.
Exports down but close to 3-year average to 2018–19
In 2020–21 to date exports have been substantially lower than for the same period in 2019–20. They are forecast to remain close to the 3-year average to 2018–19 for the remainder of 2020–21.
Export earnings reached record highs in 2019–20. This was a result of high turn-off in response to drought (leading to high export volumes) and strong international protein demand (leading to high global prices). Export volumes are forecast to fall, highlighted by a 50% fall in volumes to China and a 17% fall in volumes to Japan. It is reflected in both fresh and frozen beef, likely due to substitution by consumers away from higher-priced Australian beef to lower-cost product from Brazil and the United States. Exports to the United States and the Republic of Korea have remained steady to date.
Slow start to live exports in 2020–21
After strong post-Ramadan restocking in June and July this year, live exports to Indonesia dropped – leading to a slow start to the financial year. Export numbers to Vietnam between July and October were lower than in recent years, but the cattle exported were heavier. Live export prices for cattle exported from Darwin and Townsville are close to the highs of 2016–17 but have not risen as much as the Eastern Young Cattle Indicator. For the remainder of 2020–21 live cattle volumes are expected to remain low year-on-year, due to high Australian cattle prices and the impacts of COVID-19 control measures on export markets.
Global demand to decline marginally, production to increase
Reduced pork production in China has continued to place upward pressure on beef prices because Chinese consumers continue to substitute towards other sources of protein, including imported beef. In 2020–21 global beef exports are expected to increase, largely because of strong exports from the United States and Brazil.
Chinese meat imports for 2021 are forecast to be slightly down on 2020, but reduced pork production continues to result in consumer substitution and higher prices for beef. Expenditure on food, liquor and tobacco was higher in the first 3 quarters of 2020 compared with the same period in 2019. However, food expenditure at catering services was 24% lower, highlighting the continued detrimental impact on demand for high-value beef imports.
In 2021 US production is forecast to increase, following COVID-19 disruptions to abattoirs in April and May 2020. The backlog of slaughter-ready cattle in the United States appears to have cleared. Slaughter delays and good feeding conditions led to higher carcase weights, more than compensating for the 0.1% year-on-year decrease in third-quarter slaughter. Despite the additional production, the US Department of Agriculture (USDA) is forecasting beef imports to remain steady due to high domestic beef demand. US beef exports are expected to increase as the cattle cycle continues its contraction phase. This will be supported by US producers selling cattle in response to a dry winter and high feed prices (La Niña leads to wetter conditions in Australia but drier conditions in North and South America – see Seasonal conditions).
Exports from Brazil have increased due to high global prices, low exchange rate and low domestic demand. The USDA has forecast Brazilian beef production to increase in 2021 by 4% and exports by 8% compared with 2020. Higher supply from the United States and Brazil is expected to lead to greater competition in high-value markets.
Opportunities and challenges
Uncertainty surrounds COVID-19
COVID-19 continues to affect global beef markets through the impact of containment measures on consumer incomes and demand. Global beef demand has remained relatively resilient to date, but this may change with rising case numbers in the United States and Europe.
Meat production has been one of the few agricultural industries affected directly by the virus itself, with illness among workers affecting global abattoir productivity. Abattoirs in developed countries like Australia, the United States and Germany appear to be managing this risk effectively through a combination of physical measures in abattoirs and changes to labour hire conditions (such as paid pandemic leave in Victoria).
Uncertainty in the trade relationship with China
Australia's beef exports have been largely unaffected by trade tensions with China. Five Australian beef processing plants were suspended from exporting to China in May and June for administrative reasons, and no further restrictions on beef have followed. The fall in exports as China recovers from African swine fever has been accelerated by low production and high prices for Australian beef. This deficit in Australian beef exports to China will be replaced by competitors. Regaining market share may present a future challenge to Australian exporters.
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