Australia's beef industry 'cautiously optimistic' on 2009

by Bryan Salvage
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NORTH SYDNEY, AUSTRALIA – Australia’s cattle industry is set to rebuild returns in 2009, despite ongoing challenges both at home and abroad. Their optimism is due to the lower Australian dollar, better seasonal conditions, lower costs and strong export demand, according to Meat & Livestock Australia’s 2009 Cattle and Sheep Industry Projections.

MLA’s economist Tim McRae, however, warns that the unprecedented volatility in financial, currency and commodity markets and worsening global economic situation could offset more positive projections.

"The turbulent trading conditions and subdued cattle and export prices that the industry weathered over the latter half of 2008 may continue for another few months, although co-products markets will probably endure these conditions for much longer," Mr. McRae said. "It will be a case of ‘waiting it out’ while importers run down inventories, credit markets thaw out, currencies stabilize and underlying consumer demand is assessed.

As the fallout from the global financial crisis starts to settle and stability returns to markets, the Australian beef industry should be on a firmer footing, Mr. McRae said. "From the second quarter, the worst of the current trade disruptions should be behind the industry, and with stronger interest from Japan and U.S. markets, and a partial return of Korea and Russia, exporters should finally start to see some benefit from the low Australian dollar in beef export sales and prices," he added.

Australian cattle prices are expected to strengthen during 2009, particularly for young cattle and cows.

With the prospect of higher prices and lower costs, many producers outside of Australia’s drought regions appear ready to further invest in the industry and to rebuild their herds, Mr. McRae said. "We are predicting the herd to reach 28.58 million head by June 30, 3% higher than a year earlier. This should forge the way for higher supplies from 2010 onwards."

Herd rebuilding will constrain growth in beef supplies in 2009, with production forecast to rise by only 2% (with the increase mainly coming from higher carcass weights). Consequently, competition for available cattle will be robust, with exporters, rather than domestic processors, likely to provide the strongest competition for cattle.

Meanwhile, shipments to Japan are expected to hold up well, with exports predicted to rise by 3% to 375,000 tonnes. Exports to the U.S. are forecast to increase by 38% to 325,000 tonnes swt, due to strong demand in the fast-food sector and lower U.S. cow beef supplies.

"We are expecting exports to Korea to take a substantial hit this year, as the U.S. makes a strong return to the market and consumer resistance to U.S. beef eases," he said. "We are forecasting Australian shipments to be 17% lower than 2008 levels, reaching 105,000 tonnes swt – still 70% higher than in 2003."

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