Beef's challenges in 2016

The most visible challenges will come from the Americas, North and South, as the heat goes out of cattle prices in the United States, and Brazil begins to flex its phenomenal beef-producing muscle in newly welcoming markets.

It is also - rain permitting - the year in which the biggest herd reduction in the industry’s history bottoms out, and the process of rebuilding can begin.

Meat and Livestock Australia (MLA) is holding steady on its forecast that the domestic cattle herd will drop to just above 26 million in 2016.

But since its October projections, MLA has reconsidered what the herd reduction will mean for beef production. Production may be higher than previously forecast, because the cattle being slaughtered will be heavier than usual.

Ben Thomas, MLA's manager, Market Information, said the revision of production figures is being made in light of the fact that historically, carcase slaughter weights have jumped after prolonged drought.

The phenomenon has been attributed to lower stocking rates after herd liquidation in dry times, and to a greater proportion of cattle on feed.

Adding to these factors in 2016, Mr Thomas said, will be a greater proportion of lighter cattle being exported live as feeder stock.

“So in terms of herd numbers, we don’t expect much change to the forecasts, but there will be a few tweaks to what that means for beef production.”

The Australian beef industry is likely to need every kilogram it can get to capitalise on sustained global demand, although the almost effortless sales of 2013-15 may be behind it.

In November, export volumes of Australian beef into the United States crashed by 66 per cent, year-on-year.

The fall was partly caused by record volumes triggering the US tariff-rate quota, but compounded by the subsiding of America’s long, jolting bull run on cattle.

Mecardo analyst Angus Brown reported last week that US feeder cattle futures have plunged over the past few months faster than they rose in 2014, shedding 31 per cent of their value since June to arrive back at where they were in 2013.

America’s cattle numbers have built up, pumping stock into the system, and the US dollar has climbed, depressing American beef exports.

Despite the November figures, it will still be a record year for Australian beef in the US market. At the start of December, America had taken 374,424 tonnes of beef, compared to 355,650 at the same time in 2014.

The sapping of US export strength is good news for Australia, but it occurs at a time when Brazil, locked out of many key markets because of its disease status, has re-negotiated re-entry to key markets like China and Saudi Arabia.

Rabobank’s latest Beef Quarterly also predicts that Brazil will gain access to the US fresh beef market in 2016, after which hold-outs against Brazil are likely to fall like dominoes.

Rabo also notes that a brand new market will start to exert new and influential forces on the Australian beef industry.

“The introduction of live cattle trade for slaughter or feeding in China provides domestic players the opportunity to offer imports as fresh chilled beef to retail markets, claiming a premium over traditional imports of frozen meat,” said Angus Gidley-Baird, Senior Animal Protein Analyst at Rabobank.

There is a qualification: Chinese markets are going down-market, not up, because of an oversupply of beef through China’s famously leaky “grey” unofficial import channels.

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In an additional note, Rabo flags that 2016 is the year when McDonald’s makes its long-heralded move into preferentially buying certified sustainable beef.

“As McDonald’s buys less than two per cent of the world’s beef, this is more symbolic than structural, but it does signal the move beef is making into the consumer trend for sustainably produced food.”

Watch this space, Rabo suggests - which Australia will do with interest, as it has not yet developed a system for sustainability certification.