UTRECHT, The Netherlands – Key fundamentals are falling into place that will lift Australia’s beef industry, Rabobank said in its latest report “Australian Beef: On the Cusp of Greatness.”
Record-breaking temperatures and drought conditions in Australia’ cattle producing regions have led the industry to raise slaughter rates and export volumes. The pace of cattle slaughter in Australia is unsustainable in the long-term, but tight supplies of beef from major exporting countries coupled with strong demand are expected to benefit Australian beef producers, according to the report.
Australian cattle prices are expected to be 40 percent to 70 percent higher than the five-year average, which represents a range between A$5 per kilogram and A$6 per kg. cwt over the next 12 months. Rabobank said several factors support prices reaching these levels. Changes to country of origin labeling laws in the United States, strong demand for beef by US consumers and tightening supplies of Australian beef could lead to higher prices for Australian beef without compromising product competitiveness. Additionally, opportunities for improved demand situations through free trade agreements such as the ASEAN-Australia-New Zealand Free Trade Area offers Australia a wide range of export markets while lessening the industry’s exposure to market fluctuations. Gradual reductions in Australia exports of beef to the US will lead to transferring supplies to growing markets in China and Southeast Asian countries such as Vietnam and Cambodia.
Demand for beef is expected to continue growing in Indonesia, which will be the primary destination for Australian beef with a medium-term export volume of 700,000 to 800,000 head per year, Rabobank said in its report. However, political influences will be major headwinds for further development of trade in beef.
The US has been a particularly valuable market for Australian beef during the past 18 months. The US became Australia’s largest export market for beef following sharp liquidation of the US cattle herd to 35 year lows, record prices for beef and a weak Australian dollar. In 2014, the US Dept. of Agriculture reported slower than expected herd rebuilding which means supplies of beef cattle in the US will remain low longer. However, Rabobank said Australia is filling a short-term supply gap in the US beef production system, and Australian beef producers need to plan for when for when factors that favored Australian beef exports to the US swing the other way.
“Any matter that affects the relative strength of the two economies and results in an appreciation of the Australian dollar could facilitate a more rapid reduction in exports to the US,” Rabobank said in its report.
Still, the increase in consumption of burgers in the US and demand for premium burgers will be a double benefit for Australian beef exporters. First, it encourages continued demand for ground beef. Second, demand for premium offerings puts consumers’ focus on quality.
“… the quality focus of the consumer provides opportunities for the Australian beef sector to capitalize on the intrinsic characteristics of the Australian beef production system that meet these new consumer demands,” Rabobank noted.
Australia is in a position to leverage strong global demand for beef and to develop an industry with a premium, value-added product, Rabobank concluded. The future of the Australian beef industry is bright, although improvements in weather and rain in drought-stricken cattle-producing regions would provide relief for Australian beef producers seeking to begin herd rebuilding.