Live cattle exports are still not making much money for agribusiness group, Ruralco, but it won’t give up on what it sees as positive long-term prospects for the trade.
Soaring cattle prices in Australia and subdued demand from export buyers, plus slow progress on the developing Chinese live cattle import story, have dogged Ruralco and other live exporters for the past year.
Farm services rival, Elders, is about to finalise the sale of its North Australian Cattle Company (NACC) and major player, Wellard, has ramped up its efforts in alternative trade routes from South America to Asia.
“In the medium to longer term we see enormous benefits from live exports for our customers and our agency business (which sources the cattle), but the market is still pretty tough at the moment,” conceded Ruralco managing director, Travis Dillon.
Frontier International Agri has one live cattle vessel shipping stock to Indonesia and Vietnam from Darwin, and Townsville in North Queensland, and occasionally Fremantle in WA.
It exported 57,000 beef cattle in the six months to March 31 which was almost 7000 fewer than the same period in 2016.
But it also slashed its costs after restructuring the business and quitting the long-haul southern Australian export trade.
The “obvious medium to long-term growth opportunity” was exports to China, but high Australian sourcing prices and continuing quarantine protocol issues were making Chinese market prospects a “slow burn” at this point, Mr Dillon said.
Wellard has also refrained from saying how long it will take to get its big investment in the Chinese live cattle shipment market operating, but it predicts the possibilities are exciting.
“Our Frontier business has achieved a very pleasing turnaround and exports were in line with expectations for the first half,” Mr Dillon said.
“However, there’s no doubt the sentiment in the beef industry is that prices in Australia must come back if the whole industry – producers, abattoirs and live exports – are to be sustainable.
Significantly cheaper competition from South American live exports and boxed frozen beef were challenging the Australian trade.
“We certainly want our beef producers’ prices to be as profitable as possible, but this market can’t be sustained.”
Expectations from market forecasters, including Meat and Livestock Australia, is current indicative eastern young cattle prices around 650 cents a kilogram will subside at least 100c towards 500c/kg by next year.
“That’s still likely be above latest three-year averages, which means producers still get a good result and processors can hopefully keep their shifts working.”
After shutting its southern live cattle business, which was primarily exported dairy heifers to China, the restructured Frontier business reported $1.5 million in earnings before interest tax depreciation and amortisation for the first half of 2016-17.
Restructuring included establishing new backgrounding programs to ensure quality stock for the supply chain’s overseas customers, also focusing on export trade compliance issues.
Mr Dillon said quarantine issues relating to the China centred on the blue-tongue disease in northern Australia, and China’s resistance to allowing cattle into its blue-tongue-free zones.
“But the real issue for the industry is around prices,” Mr Dillon said, indicating buyers wanted as much as a 20 per cent drop in current values, although “that conversation is pretty elastic”.
“For the moment we just have to accept the market for what it is and take a pretty heavy cut to our margins rather than have a vessel moored empty in Darwin harbour.”