While recent rain in south east Queensland has been encouraging, the ongoing dry conditions and pressure on cattle prices are no doubt occupying the thoughts of most cattle producers. When widespread rain does come and there are opportunities to grow again, understanding some of the pressures that we might face in five years’ time will help shape the actions taken today. One of those pressures includes what is happening in one of our biggest markets – the US.
US Rabobank analysts expect their beef production to continue to grow until 2022 before starting a slow decline.
The increase in production is based on a forecast rebuilding of cattle driven by growth in domestic consumption, growth in exports and stability of corn (feed) prices. US beef cow numbers are expected to reach close to 32 million head in 2020 before dropping back to between 30 and 31m head. The end result is US beef production is expected be eight to 10pc higher in 2021 than it was in 2016.
This extra US beef in the system will have a number of implications for Australia.
This extra US beef in the system will have a number of implications for Australia.
Firstly as a competitor in two of our key markets – Japan and South Korea. Australia currently sends similar volumes of comparable beef products to these destinations and price competitiveness is critical. While Australia has an FTA with Japan, providing some breathing space, the US has a two-year head start on us in its agreement with South Korea. Per unit import values for Australian and US beef track very closely together. With the forecast that US beef production and exports will continue to grow, it is unlikely that US supply constraints will lead to any dramatic upside in prices.
On the other hand, the US is a big importer of our beef, principally lean trimmings. This complements the US production system, balancing the higher fat content beef it produces. There will be two factors to watch. Firstly the increase in the US cow herd will mean an increase in its domestic production of lean trimmings, potentially reducing the need for Australian product. On the other hand, if the US increases its cattle carcase weights, and in turn increases production of fatter animals, there would be an increased need for lean trimmings. The US forecasts, however, are not expecting carcase weights to increase significantly over the next five years. So while there will be ongoing demand, it is unlikely that we will see the level of demand and high prices for lean trimmings that we experienced back in 2014.
If you add our own growth into this outlook, we are going to have to sell more beef into a global market that is increasingly competitive.
