Jonathan Wong, Alistair Read, Jasmine Rollan and Cameron Van–Lane
- The gross value of livestock production is forecast to remain steady at $34 billion in 2022−23.
- The value of dairy production will increase due to higher farmgate milk prices.
- The value of beef, sheepmeat and wool production will fall due to lower prices.
The gross value of livestock production is forecast to remain steady at $34 billion in 2022−23. The value of dairy production is forecast to increase by 22% to a record $6 billion in 2022−23 due to much higher farmgate milk prices. These gains will partly offset price falls for beef, sheep meat and wool (Figure 1.1). Production volumes for meat are forecast to remain steady, with wool production to increase and milk production forecast to fall. The main risks to the forecast are if the global economic downturn is more rapid than forecast (see the Economic overview), or if summer is wetter than forecast (see the Seasonal conditions overview).
Livestock exports are forecast to fall by 5% to $26 billion in 2022−23. The global economic downturn is expected to lead to lower export prices for beef, sheepmeat, dairy and wool. Live export volumes for both cattle and sheep are forecast to fall due to lower demand and high cattle prices. The impact of a fall in prices will be balanced by a lower Australian dollar, which will increase the competitiveness of Australia's agricultural exports in international markets.
Livestock prices are forecast to fall in 2022−23 due to increased supply, lower restocking demand, and a slowing global economy. Wet conditions have disrupted the supply of livestock to markets and processors. The reduction in supply has helped keep prices high, especially for lamb. However, supply is expected to recover from February to June 2023 due to less rainfall related disruptions in eastern Australia.
Restocking demand is expected to continue to ease from the highs of 2021−22, but remain strong. Above–average rainfall has resulted in good pasture growth forecasts for eastern and northern Australia. This will enable graziers in northern Australia to retain more female cattle to rebuild their herds. On the west coast, drier conditions have contributed to lower lamb and cattle prices relative to the eastern states.
Slowing economic growth will reduce demand for discretionary products
Downgraded global economic growth expectations are forecast to reduce demand for discretionary products in 2022–23. However, the effects will be somewhat mitigated by a weaker exchange rate. In the United States, lamb and beef demand and prices have fallen since the September outlook, but remain relatively high. Demand for fresh beef and lamb exports is expected to continue to fall. Despite weaker demand, strong sales of manufacturing beef in recent years suggests that consumers are likely to substitute to cheaper cuts of red meat. This substitution will benefit beef more than lamb because there are more substitution options available.
Dairy and wool products are facing lower demand and prices from China due to ongoing COVID–19 related lockdowns. The lockdowns are also disrupting early–stage wool processing and downstream supply chains. Uncertainty around China’s struggling real estate sector is further reducing consumer confidence. The Eastern Market Indicator (EMI) is forecast to average 1,280 cents per kilogram in 2022–23, down 8% compared to 2021–22. The worsening economic outlook is expected to have two effects on the demand for wool. Firstly, there will be less spending on apparel, and secondly, consumers will move from woollen products to cheaper substitutes like cotton and polyester (Figure 1.2).
The farmgate milk price is forecast to rise by 28% to 72.6 cents per litre in 2022−23. In real terms, this represents the equal highest farmgate milk price on record since the dairy industry was deregulated in 2000. At the start of the 2022−23 season dairy processors expected high global dairy prices and low levels of domestic milk production. The competition between processors to secure milk supply led to a sharp increase in the farmgate milk price offered by processors. Global prices for all dairy products except cheese are expected to fall in 2022−23 but remain at relatively high levels (Figure 1.3). However, dairy contracts are usually made in US dollars. The weaker Australian dollar means that export prices received will increase for Australian dairy exporters in the short term. Nonetheless, lower global demand for dairy products suggests that further price step–ups during the 2022−23 season are unlikely.
A third consecutive La Niña event and second negative Indian Ocean Dipole through the first half of 2022–23 have resulted in above average rainfall and strong pasture growth across grazing regions of Australia. The favourable conditions are driving a continued rebuild of the beef herd and sheep flock. However, flooding across south–eastern Australia is also causing disruptions to livestock supply chains and contributing to shearing delays in the short–term. The situation is expected to improve during early 2023 as the extreme weather season passes.
Beef production is forecast to be slightly higher in 2022−23 due to falling prices and greater cattle availability. Cattle slaughter for the September quarter was 3.6% lower than in 2021-22, however slaughter for other animals, like lambs, is higher. Cattle slaughter will likely increase due to domestic cattle prices falling in early 2023, improving processor margins. However, the magnitude of these increases will be limited by processing capacity.
Sheep meat production is forecast to increase by 8% in 2022-23 due to a larger breeding ewe flock and increased lamb weights. Sheep slaughter volumes for the September quarter were 12% higher than the previous September quarter in 2021-22. Ongoing flock rebuilding has increased the supply of lambs and sheep available for slaughter. The wet conditions also increase the risk of disease pressure and mortality rates, particularly for sheep and lambs, impacting production volumes.
The good pasture conditions also mean wool cut per head is forecast to remain steady at 4.54 kilograms. Shearing labour constraints in 2022-23 are expected to ease with increased international arrivals, especially from New Zealand, as well as improved interstate mobility. Consequently, the sheep shorn to opening ratio is expected to lift slightly. Overall, Australian shorn wool production is expected to reach 334 kilo tonnes in 2022–23, an increase of 6% compared to 2021–22.
Milk production to fall due to seasonal conditions
Milk production is forecast to fall by 4% to 8.2 billion litres in 2022−23 due to wet seasonal conditions reducing milk yields. Flooding in northern Victoria and central west New South Wales has prevented milk tankers from accessing some dairy farms. This caused a small number of farmers to dump their milk. From July to October 2022, Australian milk production was more than 6% lower than it was in the previous financial year. This trend is expected to continue in the coming months following high levels of rainfall and flooding in regions of Victoria, Tasmania and New South Wales.
The indirect effects of the wet conditions will likely have larger implications for national milk production. Water damage is expected to result in reduced availability of high–quality fodder over the coming months. The wet conditions also increase the risk of animal health issues (such as mastitis, lameness, and foot rot) which reduce cow yields.
The volume of Australian exports is expected to fall for all dairy commodities except cheese. A fall in domestic production, combined with strong demand from the domestic food service sector, is expected to drive the reduction in dairy export volumes. However, recent investment by processors in cheese manufacturing and high export prices for cheese are expected to drive a small increase in cheese export volumes.
Live export industry facing considerable challenges
Live exports are forecast to fall for both cattle and sheep in 2022−23. Foreign lot feeders are facing pressure due to expensive cattle, expensive feed, and reduced demand for beef. Businesses are cautious of taking on the risk of more cattle when consumer demand is low and a foot and mouth disease outbreak could see them lose their stock. Cattle are still being exported, but at lower volumes compared to the heights of 2019−20 (Figure 1.4).
Breeder cattle are still being exported at relatively stable numbers. The imminent ban of live exports from New Zealand has seen Chinese dairy cattle importers turn to Australia, keeping export volumes steady.
World meat supply is expected to remain steady. US cow slaughter has continued at higher–than–expected levels in response to drought conditions in many parts of the US. High cow slaughter numbers in 2021 and 2022 will result in a smaller US herd and US beef production falling in 2023. The Brazilian cattle herd will continue to recover from high slaughter numbers in recent years, with a larger herd to facilitate greater volumes of beef production. Global pork prices increased in mid–2022 due to high feed costs reducing producer margins and tightening pork supply. Prices are expected to stabilise in 2023 because China plans to release pork from government reserves to maintain supply.
New Zealand lamb production is expected to fall due to a smaller flock and less breeding ewes. Dry autumn conditions have also contributed to decreased lambing rates. The New Zealand Ministry for Primary Industries' June 2022 Situation and Outlook for Primary Industries report notes that the long-term decline in ewe numbers is set to continue, driven by afforestation (carbon farming), an increased frequency of drought and other extreme weather events, increasing farm expenses, environmental regulations, productivity improvements and very low crossbred wool prices.
Increases in US milk production to offset falls in New Zealand
World milk production in 2022−23 is expected to remain at similar levels to those in 2021−22. The United States is expected to see the largest increase in milk production due to rising cow numbers and milk yields. Milk production in New Zealand is expected to fall in 2022−23 and remain relatively stable in the EU and Argentina. The lacklustre growth in milk production across the major dairy exporting countries means that global supplies of dairy products will remain constrained.
Global economic conditions remain a source of uncertainty
Considerable uncertainty remains around the likely economic downturn in major economies. This in turn results in lower consumer confidence and spending. Recent interest rate hikes are also likely to dampen consumer spending in major economies. China's zero–COVID policy will continue to affect international demand for livestock products throughout 2022−23. An easing of restrictions will likely result in an uptick in demand, broader economic uncertainties notwithstanding.
Emerging biosecurity issues
Flooding across eastern Australia has changed biosecurity risks for farms. The significant growth in mosquito populations is likely to increase the risk of mosquito–borne viruses like Japanese encephalitis for livestock and human populations in affected areas. Flooding may also result in weed seeds being moved to areas they may not have previously been in.
Foot–and–mouth disease and lumpy skin disease have both been reported in Indonesia and other countries to Australia's north. Both diseases would be extremely disruptive to Australia's livestock industry. The Australian Government is working with industry to develop prevention and preparedness measures. The September (Australian) Agriculture Ministers' Meeting committed to work with industry towards mandatory implementation of national individual electronic identification for sheep and goats in each jurisdiction by 1 January 2025. The October Budget also delivered an additional $134 million in funding to improve Australia's biosecurity preparedness and capability.