AFTER a noticeable drop in beef exports in September, volume has bounced back in October according to latest figures from DAWR (Department of Agriculture and Water Resources).
Shipped weight of beef to all destinations was reported at 98,888 tonnes, an 8pc turnaround on the September figure. However this is still a long way short of the 105,000t average seen over the four months May to August which made the September drop to 91,000t look so dramatic.
As explained in this column back in early October, the reason for the September fall was mostly to do with September having three fewer working days for the month compared to August.
My guess is that the rate of kill was maintained through September at around 32,300 head per working day, much the same as for August and prior months. That would put the September kill at around 645,000 head but we won’t have confirmation of this until the time-lagged ABS (Australian Bureau of Statistics) figures come out later this month.
If the same kill rate carried through into October with its 22 working days the volume of beef exports should have recovered to over 100,000t but that did not happen. This suggests that the kill rate has dropped off which in turn means some works are experiencing downtime.
The likely scenario is that the initial rain at the beginning of October didn’t cause much of an issue but as the falls compounded during the month and the ground got wetter, supply came under increasing pressure.
The question now is whether there will be any kick in supply in the five or six weeks remaining until Christmas closures. Even without a late surge the die would seem cast for the 2018 calendar-year result.
As at the end of September, national slaughter will show up in ABS figures at just over 9pc higher than same period 2017 and the remaining quarter can be expected to apply no more than a slight downward trend to that number.
That should mean national slaughter for 2018 will come in at around 7.8 million head. With exports at 938,000t for the 10 months to end of October it seems pretty certain the full-year result will be around 1.1 million tonnes.
That would put it up there with the tonnage recorded in the drought years of 2013-2015 and largely for the same reason; liquidation of females from the national herd.
Strength in Asia
WHILE the US market will reflect a fairly flat trading volume for 2018, the same cannot be said for our Asian markets. Japan is up 8pc on 2017, Korea up 15pc, China up a massive 53pc and Indonesia although off a much smaller base is up 19pc.
High feedlot inventories have no doubt put Australian exporters in a position to meet rising demand at the quality end of the spectrum in Japan and Korea and China’s current spike in demand has proven to be very timely for product that exporters would normally be looking to place in the US.
Japan’s year-to-date volume of 262,000t will mean a full-year result of more than 300,000t, a figure not seen since 2012.
This has been achieved against strong competition from the US where production cost is down due to elevated supply from a herd that is approaching the peak of its rebuild phase.
Tariff reductions that flowed from Australia’s trade agreement with Japan (JAEPA) have also helped but this is not expected to last.
In bilateral trade negotiations that Japan and the US have now agreed to commence, the US is expected to gain a significant concession in beef tariffs but whether Japan agrees to fully align the US with what it would have achieved had it remained a party to TPP remains to be seen.
Until those negotiations conclude and a deal is ratified, Australia’s tariff advantage will continue and even improve slightly as its recent ratification of TPP-11(the 11 nation TPP agreement post US withdrawal) will mean the new and improved tariff reduction schedule under that agreement will commence in December.
Currently the JAEPA fresh beef tariff is 29.3pc. TPP-11 will drop this to 27.5pc in December and 26.6pc on April 1, 2019.
That is a 2.2pc advantage on where Australia would have been under JAEPA in 2019 and the advantage gradually widens over the years of the implementation schedule.
For frozen beef TPP-11 offers no advantage over JAEPA in years 1 and 2 but it starts to move ahead in year 3 which commences April 1, 2020.
At the 11 year mark of the TPP-11 reduction schedule the advantage over JAEPA stretches out to 4-5pc.
But then the really significant difference starts to kick in as TPP-11 carries on where from where JAEPA stopped.
This extra reduction under TPP-11 will take the tariff for both fresh and frozen beef down to 9pc over 15 years whereas under JAEPA it stopped at 23.5pc for fresh and 19.5pc for frozen.
Korea safeguard triggered
IN contrast to the Japanese market which jumped by 4000t in October, the Korean market dropped by a further 1600t on an already reduced September volume.
In late September traders were anticipating the KAFTA safeguard trigger was imminent and no doubt were adjusting their arrangements to accommodate the snapback in tariff from 26.6pc to 40pc.
A DAWR spokesperson confirmed the trigger occurred on 11 October 2018.
Product shipped for 2018 will now incur the additional 13.4pc but the kicker is that the volume will count against the 2019 safeguard which resets on 1 January.
Since KAFTA came into effect the safeguard has triggered each year and the cumulative effect of out-of-safeguard product being taken up in the following year is causing the trigger date to creep forward despite a 2pc increase each year in the safeguard volume.
In 2015 safeguard was triggered in November, in 2016 and 2017 it was mid-October and now it is early October.