Now’s the time to reshape our beef sector

In Rabobank’s latest Beef Seasonal Outlook report for 2021, titled Green Grass and Empty Pens, the agribusiness banking specialist said Australia’s beef industry has a once-in-a-generation opportunity to reassess and pursue its future direction as breeding cattle inventory begins to recover from the lowest levels seen in more than 30 years.

“A number of challenges currently confront the Australian beef industry, including high cattle prices for those trying to build stocks, low supplies and China trade access,” said report author and Rabobank senior animal proteins analyst, Angus Gidley-Baird.

“Australia’s position in the global protein world needs to be considered in rebuilding the herd.  Are we going to be a supplier into high-quality niche markets, a commodity supplier of lean beef to global trade, an exporter of live cattle or exporter of value-added beef to trade markets?”

Gidley-Baird added decisions taken this year are not just about whether to restock at high prices, but also about which genetics, productions system attributes, feeding regimes, supply chains and end customers are needed to build a sustainable basis for the business in the future.

Overall, the outlook for the year ahead will be characterised by very limited cattle supplies, the report said. 

“This will provide strong support for cattle prices, but also mean ongoing scarcity for restocking and fattening as well as challenge capital efficiency, with many plants and feedlots running below capacity,” Gidley-Baird said.

Extremely low breeding stocks will severely limit Australian cattle slaughter, which in 2021 is forecast to be down six per cent on last year.

The nation’s beef exports are expected to drop five per cent, with live export numbers also forecast to decline by the same percentage due to low availability of cattle.

Global beef markets are set to remain finely balanced, with improved economic conditions and a recovering food service sector expected to create a more positive market for beef demand. However, COVID, African swine fever, freight issues and trade tensions remain risks which could disrupt the market, the report said.

Domestic cattle prices are forecast to remain very strong in 2021, though easing as producer demand dissipates.

“Based on Rabobank modelling, young weaner cattle prices (as measured by the Eastern Young Cattle Indicator) are expected to drop to 700c/kg by the end of 2021,” Gidley-Baird said.

Australian cattle slaughter for 2021 is forecast to be 6.7 million head – representing a drop of six per cent from 2020.  Production levels, however, will be somewhat supported by high carcase weights.

Good seasonal conditions had seen average carcase weights rise six per cent through 2020 to reach 305 kilograms – the highest on record.

“We believe average weights will remain at this level through 2021 and, as a result, the drop in beef production will be five per cent, to two million tonnes,” Gidley-Baird said.

Domestic consumption of beef is forecast to remain relatively steady in 2021, after a decline in per capita beef consumption of 12 per cent over the past two years.

On the global stage, Australian beef faces challenges with low supplies, higher prices, an appreciating dollar and reduced access to the China market all creating headwinds, the report revealed.

Export volumes to China – impacted by high Australian beef prices, low supplies and trade tensions – are likely to see a larger decline than the more stable and established markets of Japan, South Korea and the United States.

“Japanese and South Korean markets have remained relatively steady through 2020 and these long-standing markets are expected to maintain import volumes of Australian beef in 2021, although we will face strong competition from the US, which is anticipated to increase exports through the course of 2021,” Gidley-Baird said.

Bank analysis of regional conditions around Australia showed rebuilding of herds and restocking of properties underway, but not consistent across the country, with parts of Queensland and northern Australia having been unable to increase breeder numbers through the course of 2020.

Low intentions to sell breeding cattle suggest breeding replacements is the preferred option for producers across Australia.

“This would prolong the re-build phase, with limited opportunity to purchase breeding stock from other areas of the country,” Gidley-Baird said.