Outlook for livestock

The gross value of production for livestock and livestock products is forecast to fall slightly to $34.6 billion in 2023–24, down from an estimated $35.3 billion in 2022–23 (Figure 1.1). The forecast fall in production values reflects lower prices across most livestock and livestock product categories more than offsetting higher levels of production.

The forecast fall in the gross value of production is driven by beef, veal and live cattle (down 2% to $14.7 billion), sheep meat and live sheep (down 3% to $4.3 billion), milk (down 5% to $5.6 billion) and pork and poultry meat (down 3% to $4.9 billion).

The gross value of wool production is forecast to increase to $3.3 billion in 2023–24, up from $3.1 billion in 2022–23. The forecast increase is driven by higher wool prices reflecting increased Chinese demand following the lifting of pandemic restrictions from late 2022.

Figure 1.1 Gross value of livestock production and livestock products

The value of livestock sector exports is forecast to remain elevated at $26.9 billion in 2023–24, slightly lower than the forecast $27.5 billion in 2022–23 (Figure 1.2). Export values for most livestock and livestock products are forecast to fall due to lower export prices outweighing higher export volumes. This reflects global supply rising faster than global demand.

The fall in export values is driven by a decrease in sheep meat and live sheep (down 4% to $3.9 billion) as well as dairy (down 3% to $3.4 billion). However, the total value of beef, veal and live exports are forecast to rise (up 2% to $11.8 billion) as increased beef production more than offsets a fall in global beef prices. Wool export values are also expected to rise (up 8% to $3.6 billion), supported by higher wool prices and increased export volumes. Falling shipping costs and improved processing capacity in China are expected to boost manufacturing demand to process high quality wool.

Figure 1.2 Gross value of livestock and livestock product exports

Falling restocking demand and rising turn-off to drive down livestock prices

Average saleyard prices for cattle, sheep, and lambs are forecast to fall in 2023–24 reflecting higher turn-off rates and lower restocking demand (Figure 1.3). The potential onset of El Niño from July 2023 and a positive Indian Ocean Dipole (IOD) event from winter to spring 2023 will likely generate drier seasonal conditions to Australia – see Seasonal Conditions for more context. In 2023–24, these drier conditions are expected to end the recent herd and flock rebuilding period as pasture availability falls and prices for supplementary feed increase. This is expected to reduce farm demand for cattle and sheep, cause higher turn-off rates and increase animal supply in saleyards, weighing on prices. However, prices are expected to remain above their long-term average, supported by strong global demand for Australian meat exports.

Average cattle saleyard prices are expected to fall by 8% to 614 cents per kilogram in 2023–24. Prices are expected to fall more in the second half of the financial year as good pasture and feed availability ahead of the 2023 winter season support carrying capacity and prices in the short term. Saleyard prices in northern Australia continue to maintain a premium over southern Australia owing to better pasture availability and a delayed start to the northern rebuilding cycle. Global beef prices are also forecast to fall as rising global beef supply (particularly from Australia and Brazil) outweighs stronger demand from China and the United States.

Lamb and sheep saleyard prices are forecast to fall to 700 cents and 398 cents per kilogram, respectively in 2023–24. Saleyard prices for restocker lambs are expected to fall, reflecting less favourable seasonal conditions over spring and summer. Reduced pasture growth is also expected to result in lighter carcase weights and increased farm turn-off, placing downward pressure on saleyard prices for lamb and sheep. Global sheep meat prices are also expected to decline as increased supply from Australia outweighs higher demand from China.

Figure 1.3 Livestock average annual saleyard prices

Box 1.1 Constructing a new average saleyard price for cattle

ABARES has updated its calculation method for the average saleyard price (ASP) for cattle to incorporate new cattle price indicators from Meat and Livestock Australia (MLA). ABARES’ new average saleyard price is constructed using MLA’s national Heavy Steer Indicator and Processor Cow Indicator. These data series are reported in cents per kilogram liveweight (c/kg lwt). To convert this price to cents per kilogram carcase weight (c/kg cwt), ABARES applies a conversion factor to MLA’s indicators.

The conversion factor is determined using the historical relationship between liveweight and carcase weight prices using data from MLA. Between January 2005–January 2023, the carcase weight price for heavy steers was 187% higher than the liveweight price on average. Over the same period, the carcase weight price for processor cows was 209% higher than the liveweight price, on average.

ABARES’ updated average saleyard price applies the relevant conversion factor to each MLA indicator, then calculates a simple average of the heavy steer and processor cow prices.

ASP (c/kg cwt) = (MLA Heavy Steer Indicator * 1.87) + (MLA Processor Cow Indicator *2.09)
2

The new average saleyard price is very similar to the old average saleyard price (Figure 1.4).

Figure 1.4 Comparison of ABARES’ new and old average saleyard price

Domestic poultry and pork prices to decline with lower production costs

Domestic pork and poultry meat prices are forecast to decline in 2023–24 reflecting lower production input costs for feed grains, energy and labour. In addition, falling domestic prices for beef and lamb is expected to result in some consumer substitution away from pork and poultry meat. However, lower disposable incomes in Australia in 2023–24 (see Economic Overview for more context) is expected to support demand for pork and poultry meat in contrast to traditionally more expensive meats such as beef and lamb. Chicken meat is forecast to remain the most consumed meat in Australia in 2023–24, accounting for 47% of domestic meat consumption, followed by pork at 27%.

The forecast decline in pork and poultry meat prices in 2023–24 follows a two-year period of significant price rises relative to the long-term trend (Figure 1.5). Higher production input costs including for the price of feed grains, energy and labour contributed to higher prices for all meat products in Australia over recent years. However, domestic prices for beef and veal as well as sheep meat have experienced especially strong growth over the last few years, as the outbreak of African Swine Fever in China reduced global meat supply and favourable seasonal conditions in Australia supported demand for herd and flock rebuilding. As a result, Australian consumers substituted towards consuming more pork and poultry which increased demand and in turn raised prices by 15–20% since June 2018.

Pork and poultry meat production is forecast to increase slightly in 2023–24. After strong increases in production over the last 2 years in response to higher prices, supply constraints in breeding and meat processing will limit further production growth in 2023–24. In addition, forecast declines in pork and poultry meat prices will reduce incentives to significantly expand production.

Figure 1.5 Quarterly consumer price index for meat and livestock products

Farmgate milk price to fall due to lower global prices

The Australian farmgate milk price is forecast to fall by 5% to 68.8 cents per litre in 2023–24, reflecting lower export prices and a small increase in domestic production in 2023–24 (Figure 1.6). Farmgate milk prices are forecast to remain high by historical standards – 33% above the five-year average to 2021–22.

Figure 1.6 Milk production and real farmgate milk price, Australia

Forward guidance on milk prices from dairy processors for 2023–24 has been delayed compared to 2022–23, reflecting both high industry competition and uncertainty concerning future global dairy prices. High competition can disadvantage the first processor that announces their prices. Competition between processors at the start of the 2023–24 season is expected to remain high driven by low levels of domestic milk production and larger than usual excess capacity in dairy processing facilities. Dairy processors are currently announcing opening farmgate milk prices for the 2023–24 season. These prices are expected to allow some margin for price step-ups later in the season as uncertainty around processor profitability diminishes.

Export prices for all Australian dairy products are expected to fall in 2023–24 as rising global milk production more than offsets the rebound in Chinese demand following the lifting of pandemic restrictions in December 2022 (Figure 1.7). Many Australian dairy products are currently selling at a premium in world markets driven by limited Australian supply and a preference among trading partners for Australian products. While this premium has benefited Australian dairy exports in the short term, Australian dairy export competitiveness may fall in the longer term if they remain more expensive than those from Australia’s competitors.

Figure 1.7 Australian dairy product average annual export prices

Rising demand from China to increase wool prices

The Eastern Market Indicator price for wool is forecast to average 1,350 cents per kilogram in 2023–24, up 3% from 2022–23. This reflects expected high levels of demand from Chinese consumers following the relaxation of pandemic restrictions in December 2022. Greater household savings accrued over the last few years in China are also expected to facilitate increased spending on discretionary items such as clothing and wool-based garments. Recent investments made by Chinese wool manufacturers to expand their processing capacities will raise production and improve the cost competitiveness of wool-based products through economies of scale. This is expected to further increase demand for Australian fine wool and support prices despite rising wool supply in Australia.

Global demand for wool-based products outside of China is expected to be more subdued in 2023–24 as a deteriorating global economic outlook weighs on demand and discretionary spending. Demand for wool is less price sensitive than other fibres due to its niche nature and fewer available substitutes, however it is still affected by consumer confidence and disposable income levels.

Meat production to rise with higher turn-off rates and herd sizes

Australian beef and veal production volumes are forecast to rise by 7% in 2022–23 and 6% in 2023–24 reflecting both a larger cattle herd and drier seasonal conditions (Figure 1.8). The Australian cattle herd is expected to increase to 26.2 million head in 2023–24 as favourable conditions in Northern Australia retain high levels of feed availability at the start of the 2023–24. However, drier seasonal conditions over 2023–24 are expected to reduce pasture availability later in the financial year, prompting higher cattle turn-off.

Beef and veal production is expected to rise as increased slaughter rates more than offset lower cattle weights in 2023–24. Lower cattle weights are expected to be driven by lower feed availability relative to 2022–23 and a higher proportion of female cattle being slaughtered. However, cattle weights are expected to remain historically high. Increased domestic beef production is expected to flow through to higher Australian beef export volumes in 2023–24.

Sheep meat production volumes are expected to increase by 2% in 2023–24 due to increased slaughter rates outweighing the effects of lower carcase weights. Favourable seasonal conditions, increased breeding ewes and higher lambing rates led to the national flock reaching 70.2 million head in 2021–22 – increasing the number of lambs and sheep available for slaughter. In addition, drier conditions expected for 2023–24 and reduced pasture availability will incentivise farmers to turn-off stock. However, the sheep flock is expected to continue growing because of relatively high pasture availability, albeit at a slower pace than previous years. Higher production volumes are also expected to lead to increased export volumes in 2023–24, especially to service the rebound in Chinese consumption.

Figure 1.8 Annual production of beef, veal and sheep meat, Australia

Slaughter capacity is unlikely to constrain livestock slaughter during 2023–24. The profitability of meat processing facilities is expected to improve as domestic saleyard prices fall by more than beef export prices, encouraging processors to increase livestock slaughter. Industry liaison conducted by ABARES ahead of the June Agricultural Commodities Report indicates that labour constraints in the sector have eased. Additionally, the labour efficiency of meat processing workers is expected to improve throughout 2023–24 as a high number of new workers complete their training (which takes around eight months).

Live cattle exports to rise but live sheep exports to fall

Live cattle export volumes are expected to increase by 23% in 2023–24 driven by an increase in both live feeder/slaughter and live breeder cattle exports:

• Live feeder/slaughter cattle exports are expected to increase to 540,000 head. Falling Australian saleyard prices and shipping costs will reduce the price of live cattle exports and increase demand from key export partners such as Indonesia and Vietnam.
• The volume of live breeder cattle exports is expected to increase to around 174,000 head driven by New Zealand’s recent ban on live cattle exports by sea and strong demand from China for dairy breeder cattle. In recent years, New Zealand has exported a similar amount of live breeder cattle to China as Australia. New Zealand’s recent ban will likely mean Chinese importers will increase the number of dairy breeding cattle sourced from Australia.

Live sheep export volumes are expected to increase by 4% in 2022–23 to around 510,000 head driven by strong demand from the Middle East following higher international arrivals and a strong rebound in tourism. From 2023–24, live sheep exports are expected to weaken reflecting subdued economic growth in the Middle East and fewer sheep available for export.

Higher milk production to slightly increase dairy export volumes

Australian milk production is expected to increase by 0.5% to 8.1 billion litres in 2023–24, driven by higher milk yields, somewhat offset by fewer dairy cows (Figure 1.6):

• Drier seasonal conditions across eastern Australia in 2023–24 is expected to increase cow milk yields, with improved pasture quality and fewer animal health issues associated with mastitis and lameness. Fodder prices are also expected to fall in the second half of 2023, which will improve the feed availability for dairy cattle and benefit yields.
• Dairy cow numbers are expected to continue falling in 2023–24 reflecting continued farm exits. High land values are also expected to motivate some farm exits and many buyers will look to develop broadacre operations rather than invest in dairy farming. Some dairy farmers are also expected to transition to live dairy breeder cattle exports to service high demand in China following New Zealand’s ban on live cattle exports by sea. This is likely to further weigh on the size of the Australian dairy cattle herd. However, falling cattle prices are expected to reduce incentives for dairy farmers to switch to beef production.

Higher milk production is expected to drive a 2% increase in dairy export volumes in 2023–24. Higher exports will be driven by cheese (up by 10% in 2023–24) reflecting higher domestic production because of recent industry investment in cheese production facilities. Skim milk powder exports are also expected to increase as high domestic margins on dairy products made with milk fats, a co-product of skim milk powder production, drive higher skim milk powder production. Australian producers are expected to reduce whole milk powder production and exports as China – the largest market for Australian milk powders – continues to consume its relatively large stockpile. China is expected to consume most of this stockpile in the second half of 2023.

Wool production to remain stable

In 2023–24, shorn wool production is expected to increase to 333,000 tonnes, up from 328,000 tonnes in 2022–23. This is driven by an anticipated increase in the number of sheep shorn as falling shearing costs improve gross margins. Higher shorn numbers are forecast to be slightly offset by lower average wool cut per head. Expected drier conditions over spring and summer is forecast to decrease pasture availability heading into 2024, with average wool cut per head forecast to fall to 4.58 kilograms in 2023–24.

Superfine and fine wool production is not expected to grow markedly during 2023–24, with growth in the national flock expected to prioritise sheep meat breeds. The Merino flock is forecast to remain relatively stable in the short term due to historically high sheep meat prices over the past three years. Breeding decisions over this period have favoured sheep meat breeds because of better returns than for wool breeds.

Box 1.3 Sheep flock composition moving towards meat breeds

Back-to-back La Niña conditions since 2020–21 have assisted Australian sheep growers to rebuild their flocks. Growers have prioritised meat breeds rather than pure bred merinos (Figure 1.10), reflecting better returns for lamb relative to wool since 2019–20 (Figure 1.9). In particular, low labour availability and high wages for shearers have increased wool production costs. The shift towards meat breeds is likely to continue in the short term, but in the long term this is expected to moderate as returns to wool improve along with labour availability within the shearing sector.

Figure 1.9 shows that wool prices have fallen significantly relative to sheep meat prices since 2019–20. Figure 1.10 shows that the proportion of merinos in the total lamb and sheep flock has declined since 2020, reflecting lower returns for wool production compared to sheep meat production.

Figure 1.9 Wool to lamb GUV ratio*	Figure 1.10 Merino composition of total lamb and sheep flocks

 

Global prices for beef and veal are expected to fall in 2023–24 reflecting rising global supply. Higher Australian and Brazilian production and exports are expected to outweigh lower US supply:

• In Brazil, beef production and exports are expected to increase in 2023–24. Over the last decade the volume of Brazilian beef available for export has increased significantly. Growing Chinese import demand and a persistent depreciation of the Brazilian real led to strong growth in export returns.
• In United States, beef production is forecast to fall slightly in 2023–24 as herd destocking slows from historic highs. The rebuilding cycle in the US cattle herd is now expected to start in late 2024 or early 2025, but it will tighten global beef supply from late 2023 as US slaughter rates start to fall. The US rebuilding cycle has been delayed due to extended dry seasonal conditions reducing pasture health and lowering hay supplies. In addition, cow slaughter rates and the proportion of female animals in feedlots currently remain historically high.

Global dairy prices are also forecast to fall in 2023–24 reflecting rising global milk supply because of:

• Increased production in the United States and European Union is expected as relatively favourable seasonal conditions in the northern hemisphere support higher milk yields. In addition, falling disposable incomes have reduced domestic dairy consumption in the European Union and United States, leading to more dairy products being available for export.
• New Zealand milk production is also expected to grow slightly in 2023–24 as drier seasonal conditions, and high levels of soil moisture increase feed availability and quality.

Global sheep meat prices are expected to fall in 2023–24 as global supply increases, largely driven by higher Australian production:

• Australia is the world’s largest exporter of sheep meat, exporting around 48% of global sheep meat exports in 2021–22. Rising Australian production and exports of sheep meat in 2023–24 is expected place downward pressure in global prices.
• Rising Australian supply is expected to be partially offset by lower New Zealand production – the second largest sheep meat exporter. Sheep production and exports from New Zealand are expected to fall in 2023–24 driven by lower lambing rates, fewer breeding ewes and structural shifts in local land use to forestry and carbon farming.

Global demand for beef, veal and sheep meat is expected to rise in 2023–24 driven by rising demand from emerging and developing economies in southeast Asia and China. In particular, China’s post-pandemic economic recovery is forecast to increase demand for Australian livestock and livestock products:

• A strong Chinese recovery is forecast to support demand for Australian beef exports in the short term, but in the long term a strengthening Sino-Brazilian trade relationship and the relatively higher cost of Australian beef exports could see an increased proportion of Chinese beef imports from Brazil.
• Demand for dairy products is expected to rise from late 2023 as milk powder stocks built-up during the pandemic are depleted and the Chinese economy continues to recover strongly.
• China’s economic recovery is also expected to drive higher global demand for Australian wool exports reflecting higher consumer spending on woollen garments and textiles.

By contrast, falling disposable incomes and a subdued economic outlook across Australia’s developed economy export markets, such as the United States and Europe, are expected to weigh on demand for some Australian meat and livestock products:

• Advanced economy demand for beef and lamb are expected to slightly fall in 2023–24 as these are seen as premium products. Lower disposable incomes are also likely to cause consumer substitution away from higher quality cuts of meat towards lower quality cuts. Lower disposable incomes could also reduce demand for woollen clothing and textiles – a relatively niche, luxury item in these economies.
• Conversely United States demand for Australian beef exports is expected to increase slightly in 2023–24 – this reflects its falling US beef production rather than strong consumer sentiment.

Biosecurity remains a key risk for the livestock industry

Foot-and-mouth disease and lumpy skin disease have both been reported in Indonesia and other countries to Australia's north. If introduced to Australia, these diseases would reduce market access for Australia’s exports and be extremely disruptive to Australia's livestock industry. The Australian Government is continuing to work with industry and the Indonesian Government to develop and strengthen prevention and preparedness measures.

Australia-UK Free Trade Agreement entered into force on 31 May 2023

The Australia-UK Free Trade Agreement (A-UKFTA) entered into force on 31 May 2023. The FTA will remove tariffs from over 99% of Australian goods. Tariff elimination periods vary by product, ranging from immediately upon entry into force to ten years.

This agreement is expected to benefit Australian livestock exporters, providing immediate access to substantial duty-free transitional quotas for beef and sheep meat. Within 10 years, tariffs on all Australian agricultural goods will be completely eliminated. Australian dairy products will gain immediate access to duty-free transitional quotas, with the elimination of all dairy tariffs over five years.

Australia-EU Free Trade Agreement

A comprehensive Australia-EU Free Trade Agreement (A-EUFTA) is currently being negotiated which aims to remove tariffs on livestock products, including Australian beef, sheep meat, dairy and wool exports to the EU. As part of the FTA, the EU is also seeking agricultural access to the Australian market, as well as recognition for a range of Geographical Indications (GIs). The Australian Government has made no commitment to protect EU GIs. Any decisions on GIs in the FTA would depend on the overall outcomes the EU is prepared to offer Australia, including with regard to market access.

Australia facing increased competition in key export markets

Australia’s competitors are gaining increased access to key markets for Australian livestock and livestock products.

On 22 March 2023, Japan relaxed restrictions on Canadian processed beef imports which had existed since the discovery of bovine spongiform encephalopathy (BSE) in Canada in 2003. In 2022, Canada was forecast to have been the world’s eighth-largest beef exporter, and Japan was Canada’s second largest beef export market in 2021.

The Indonesian Government is currently considering expanding market access for live cattle imports to Brazilian exporters. While Australia has exclusively supplied live cattle to Indonesia for over 30 years, record high cattle prices in Australia are incentivising Indonesian buyers to consider other markets.

Brazil’s ability to export live cattle may be affected after a recent ruling by a Brazilian federal judge to ban all live cattle exports from Brazil. The ruling, currently nonbinding, will take effect if it is deemed legally compliant by a higher federal court and accepted by the Brazilian Government.