Bracing for beef 's baseline

Inevitably, there will be a short-term supply-driven spike in prices, perhaps even driving returns on cattle to record levels, following a return to "average seasonal conditions" in the north.

But beef producers looking for profitability to lift in the medium-term may be disappointed, the Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES) forecasts.

Rising global demand for beef is pulling new players into the game, and that could mean that current prices are the benchmark out to the end of the decade.

In the short-term, analysts for independent market information service Mecardo don't see any substantial change over 2013 cattle prices in the north. In fact, Mecardo says, until it rains there is a prospect that prices will track lower than in 2013.

Analyst Augusto Semmelroth observes that through March-May 2013, much of northern NSW and Queensland were experiencing average conditions, but "even then, young cattle prices succumbed to the ever increasing supplies and subdued restocker demand".

Hoped-for drought-breaking rains have so far failed to materialise in early 2014, so many producers have entered the 2014 March-May period in considerably worse shape than last year.

The Northern Eastern young Cattle Indicator (used as an indicator of prices north of Dubbo, NSW) has recovered ground from its January 2014 low of 278.5 cents a kilogram, but not much - only 29c/kg, or 10 per cent.

Last year, the Northern EYCI shed 21 per cent over the March-May period as producers responded to a failed monsoon by offloading cattle. A similar response this year - more cattle offloaded, lack of restocker activity, poor cattle - could see the Northern EYCI fall below 280c/kg over this period, Mr Semmelroth suggests.

Angus Brown, another Mecardo analyst, thinks two factors should put a floor in the market and prevent the EYCI falling off the graph.

One is the resurgent live export market in the north, which is pulling through "extraordinary numbers" of cattle.

The other will be a good winter in the south. An early break has delivered hope that this will be the case, but follow-up rains are needed.

"We'll probably have the normal price rise through winter," Mr Brown said, "but unless we see abnormal rain in the north, we'll be probably waiting until the next monsoon kicks off to have strong demand and tight supply push prices up to where cattle producers want them to be."

If ABARES is right, the strong cattle prices that will inevitably follow rain might be only a short-term panacea for the long-term profitability issues plaguing the beef industry.

In their outlook to 2018-19, ABARES analysts factor in a modest lift in cattle prices during herd rebuilding through 2014-16 (assuming seasonal conditions allow restocking), but then track prices down to current levels.

ABARES calculates that the average weighted saleyard price for cattle in 2013-14 will be 290c/kg. It forecasts that saleyard prices will be similar, if not trending lower, in 2018-19.

Why? Partly because ABARES assumes that the beef industry will have by then gone through an expansionary phase, and numbers available for slaughter will have increased, pushing down prices.

But other global factors will be at work, a Federal Department of Agriculture spokesman said via email.

"By 2018-19, Australia is likely to face increased competition in some of our major export markets for beef and veal. Increased supply from other exporting countries is likely to place downward pressure on beef export unit returns, and Australian cattle prices."

ABARES projections factor in the United States Department of Agriculture (USDA) forecast that by 2019, world beef exports are forecast to be 19 per cent higher than in 2013.

"More specifically, beef exports from Brazil, India and the United States are forecast to be 27 per cent, 24 per cent and 17 per cent higher, respectively, than in 2013. We expect this will provide additional competition for Australian exports."

And competition in some of Australia's most valued beef markets is likely to be fierce.

"In Australia's largest export market, Japan, competition from US beef is assumed to increase out to 2018-19. Demand from Japanese consumers for high value Australian beef cuts is assumed to fall, in favour of imports from the United States."

"In Australia's third largest export market, China, competition from exports from the United States and India is expected over the short to medium term."

"The United States and China have agreed to work towards restoring access for US beef to the Chinese market by mid 2014. The Chinese Government has also negotiated a memorandum of understanding for imports of buffalo meat from India, but trade has not yet started. Brazil is also working to have China overturn its ban on Brazilian beef since their single BSE case was detected in December 2012."

If ABARES is right, and current saleyard prices represent the long-term norm, it's possible the Australian beef industry will look quite different by the end of the decade.