Market warning for Aussie producers

12-05-2010 | Greg Sweetnam

Australian beef producers can expect a year of subdued prices and lacklustre export demand according to Meat & Livestock Australia's 2010 cattle industry projections.

MLA economist Tim McRae said a complete market recovery would not occur until demand lifted in Japan, Korea and the US, and the Australian dollar receded to a more manageable level.

"Although there is likely to be some improvement in beef and cattle prices in the US this year, Japanese demand is likely to remain sluggish," he said.

"Australian beef will also come under increased pressure in Korea from US beef, spurred by a multimillion-dollar marketing campaign and low US dollar."

Overall, beef exports in 2010 are expected to fall 5.7% year-on-year to 875,000 tonnes shipped weight (SWT), with beef exports to Japan forecast to fall 7% to 330,000 tonnes in 2010, and 18% to Korea, to 95,000 tonnes (SWT).

McRae said the high Australian dollar was expected to remain the primary problem for Australian export processors and was likely to be exacerbated by lower numbers of cattle available for slaughter.

Adult cattle slaughtering will fall 4.5% to 7.4 million head in 2010, the lowest since 1996, due to the smaller herd, previous poor breeding seasons and the retention of more females (halting the herd liquidation). With a small lift in weights, beef production is forecast to fall around 4%, to 2.05 million tonnes carcaseweight (CW).

"The low point in export and cattle prices in the current downturn is likely to be behind us now, given the improving economic conditions, the liquidation of herds across North and South America, Oceania and Europe, reduced beef stocks and the potential for better seasonal conditions than in 2009."

He said cattle prices were likely to remain subdued and post only modest improvements in 2010, led by cows and young cattle. Prices for heavy export cattle categories were expected to be most constrained due to the increased competition faced from US beef in Korea and Japan.

Despite an expected supply-induced recovery in US beef and cattle prices, the high Australian dollar and lower Australian supplies are expected to limit the recovery in shipments to the US market to only 3%, or 260,000 tonnes - still 35% below the peak in 2001, when the Australian dollar averaged 52 US cents.

On a brighter note for Australian producers, Indonesia is expected to continue expanding beef and live-cattle imports; smaller export markets including the Middle East, the EU and the Commonwealth of Independent States are expected to hold firm or expand imports.

High consumer confidence is likely to draw considerable attention to the domestic market over the coming year. Despite the 3.9% drop in beef production, overall domestic consumption is forecast to remain steady in 2010 at 740,000CW.

Due to constrained cattle prices and turn-off, rising costs, the high dollar, difficult finance conditions and the impact of several years of drought, producers in southern Australia will have little incentive to expand herds overall.

McRae said given the bright outlook for the live-export sector and the positive returns for cattle across northern Australia, cattle producers in the north should have some incentive to begin herd rebuilding, provided the monsoon did not end early.

"The industry has come through a difficult period, and can look forward to beef demand, supply and prices improving progressively over the coming five years."

The start to this recovery in 2010 was likely to be tentative, he said, unless the Australian dollar averaged well below the 90USc assumed, demand in Japan recovered, and/or the recent rains heralded an above-average year for producers across the country.

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