THE red hot money on offer for cattle this year appears to have flowed through to increased profits for beef producers, agriculture lenders say.
Costs of production - which history shows often blows out when cattle prices skyrocket - have largely been kept in check.
Australian-owned agribusiness operation Rural Bank and Rural Finance’s December Cattle and Beef Update shows the average income of Australian beef farmers increased by 20 per cent in 2015, to sit at $316,000 per annum. That built on the eight per cent increase of 2014.
General manager agribusiness Andrew Smith said all signs were pointing to that trend continuing at an even stronger rate this year, with incomes possibly up as much as 25pc on 2015 levels.
“Costs have been contained, generally speaking, with the benefit of a winter period of better rain and conditions. Herd health has also been strong,” he said.
The Update shows Australian winter rainfall this year was 82pc higher than average and in September it was the second highest figure on record. The mean temperature for winter 2016 was .91 degrees above average.
“Our insight at this stage is that for those who’ve had cattle to sell, even if it has been at a lesser volume, it will be a good profit year,” Mr Smith said.
While there had been retention of stock for rebuilding, an average beef producer turning off fewer numbers at that higher price point was going to be in a relatively strong profit position, he said.
“The big part of puzzle is how much producers have actually had to sell,” he said.
The Update, compiled by the outfit’s specialist insights team Ag Answers, shows the Eastern Young Cattle Indicator (EYCI) has averaged 27pc higher in 2016 than last year and a remarkable 48.5pc higher than the five-year average.
It was above 700 cents per kilogram carcase weight for 65 consecutive days.
The largest price increases were recorded in Tasmania, Victoria and Western Australia.
“The EYCI has enjoyed such a strong run and the correction that has come in the latter part of the year is natural as more supply came on,” Mr Smith said.
“In terms of restocker appetite, and given feed conditions, our expectation is the cattle market will increase through the first part of 2017, then level out again going into spring.
“The southern weaner sales at the start of the year will be a good indication of whether that will play out.”
Mr Smith said the EYCI might not get into the 700c/kg territory again but it should maintain a position above the 600 mark for most of 2017.
The Update says a further sign of the health of the beef sector was the growth in Farm Management Deposit (FMD) balances, which have lifted by 13pc in both 2014/15 and 15/16.
At the end of June 2016, the national balance for beef and mixed farming FMDs stood at $1.99 billion.
It has been the drastically reduced supply of cattle that has shielded producers from softening international prices, according to Mr Smith.
The volume of beef exported from January to September this year was 21pc lower than the same period in 2015.
“The main impact we’ve observed is the reduction of US demand, given the boost in volume of their homegrown product,” Mr Smith said.
US beef production is forecast to increase by 5.3pc this year and the US import price is averaging 12pc lower than last year.
Year-to-date volume of our beef exports to the US is 43pc lower than 2015, according to Ag Answers.
“We face uncertain times from a trade perspective, exacerbated by the US election outcome,” Mr Smith said.