WITH weekly kills holding up through to the Christmas close down it was apparent that the beef export year would finish on a firm note and DAWR (Department of Agriculture and Water Resources) figures released last week confirmed that volume shipped for December 2017 was slightly up on the previous month at 87,918 tonnes.
This brings the calendar year total to 1,014,716t, little different to 2016.
One interesting feature of this result is that the 2017 export volume was derived from a noticeably smaller kill.
In 2016 the national kill according to ABS (Australian Bureau of Statistics) was 7.288 million cattle compared to my projection for 2017 of around 7.15m head. The need to estimate the full-year 2017 kill at this point in time is the two-month time lag in ABS figures.
MLA commented throughout 2017 in their quarterly projection reports on the increase in carcase weights which for the year to August 2017 averaged 296.5kg, a massive 10kg or 4pc jump on the same period 2016.
ABS figures confirm a smaller proportion of female cattle in the national kill and MLA pointed out the high numbers of fed cattle in the mix. Both it would seem have combined to bring about this dramatic hike in average carcase weight.
However with regard to the herd dynamics behind this result, it would seem there is room for some difference in interpretation.
The version that MLA appears to favour is that herd rebuilding is actively under way and that in large part explains the low percentage of females in the kill.
In keeping with this view they forecast the national herd will grow by 2.5pc to reach 27.67 million this year.
An alternative view is that the apparent low proportion of females in the kill is due largely to abnormally high numbers of male cattle in the kill brought about by accelerated turnoff through feedlots of the following year’s grassfed ox.
The dynamic that fits with this scenario is that producers on balance are simply struggling to hold their breeder numbers.
Anecdotal reports suggest there have been attempts to increase herd size but these have largely been thwarted by the lack of back-to-back seasons.
For example, there were widespread reports of heifers being retained after the wet winter in 2016 but little evidence of these being joined when the 2016-17 summer failed to produce widespread rain.
Similarly there are reports of heifers being held as a result of the good October 2017 storms but whether they will go on to breed would seem to depend on how kind the current summer turns out to be.
But the common theme I am hearing from conversations with producers and agents across the state is that the good money on offer for feeders throughout 2017 encouraged widespread offloading of trading stock in order to make a bit more grass available for the breeders on hand.
This would imply that if the current summer does not produce some worthwhile moisture, we might expect to see reduction or at best continuation of static herd numbers rather than an increase in overall herd size.
In the short term that might mean some additional females in the kill but it would also suggest recovery to more workable kill numbers overall could be pushed back even further.
One problem that processors now face is the strategy that they employed in 2017 of capturing supply through high feedlot inventories now looks far less attractive.
While it might have appealed at the time as a good hedge against expected supply shortage in the latter half of 2017, increased cost of weight gain since and an expectation of heightened competition from the US in 2018 for this class of product would have given the strategy a distinctly different flavour.
How processors choose to deal with the looming supply hole in traditional grassfed ox this year will be interesting to see.
With beef production in the US expected to rise to a record 27.4 billion pounds in 2018, exporters there will undoubtedly be very active in the all-important premium markets of Japan and Korea.
In needing to continue to service their hard won business in these markets, Australian processors will need to cover their livestock supply positions.
But as was the case in 2017, the trick will be to try to get a positive balance between the revenues generated by the sales desks and the costs of producing the product.
Inevitably that will mean downward pressure on the price of slaughter stock and heavyweight feeders this year and it would seem the only thing standing in the way of a major correction is the diminished state of supply.
Japan trade increases
PROMINENT in the 2017 export figures is a substantial rise in the volume of product shipped to Japan.
Japan displaced the US in 2016 as Australia’s single largest export customer despite Japan’s volume that year being a 14-year low of just 264,000 tonnes.
In 2017 Australia’s tonnage to Japan ballooned to 292,000 despite intense competition from the US. This increase came on the back of record high feedlot placements in Australia in 2017 and considering the disadvantages Australia faced in the companion high-value market of Korea, it is indicative of where this flush of product ultimately had to end up.
Assisting Australia in this regard was the US triggering Japan’s safeguard on frozen beef causing tariff on imported US beef to rise to 50pc. But just as the US fell foul of safeguard provisions in Japan, Australia similarly became the victim of its own success in Korea.
Australia triggered Korea’s safeguard in 2016 and carry-over tonnage from that year meant that safeguard was also triggered again in 2017.
Consequently in contrast to Australia’s apparent success in Japan, trade to Korea dropped by 17pc to just 148,000t compared to 179,000t the year before.