Cattle prices in Australia have set a record high of 568 cents a kilogram, an increase of more than 220% over the year. Despite this, Australia’s largest privately-owned cattle business says Australian cattle remains “cheap” and six dollars a kilo is achievable.
“We see some classes going for over three dollars a kilo live. In China, live cattle is selling at five dollars a kilogram. In Vietnam, it is between 4.50 and 4.80 dollars. Australia looks pretty cheap (by comparison). On this basis, six dollars could be achievable for some classes of cattle,” said Troy Setter, CEO of Consolidated Pastoral Company (CPC), which is owned by UK private equity firm Terra Firma.
The key industry index, the Eastern Young Cattle Indicator (ECYI), closed at an all-time high of 568 cents a kilogram on 17 August. Setter said it was important to note that the EYCI is a carcass weight equivalent and you have to take 50 percent off it to compare prices on the index to live prices.
In its Q3 market report, Meat and Livestock Australia said that given the drought, the increases in prices seen in 2015 is “a remarkable situation”. Setter pointed to tightening supply as a result of the drought as a key factor in driving price increases.
“Australian cattle herds have gone from 28 million to close to 24 million since the drought period commended in late 2012. We are still in herd decline and because of that we are seeing tightening supply – but demand is increasing. Once we see widespread rain we’ll see the cattle price really increase substantially.” Setter said that CPC has avoided the worst impacts of the drought because its herd is geographically spread across three northern states.
At 646,685 tonnes, Australian beef and veal exports for the first six months of 2015 are 11 percent up on 2014, driven by strong demand from the US, Japan and Korea. Meat and Livestock Australia said exports are on track to be 2 percent higher than 2014’s record amount. Demand from China is also boosting the industry, with beef and veal imports to the country in the first six months of 2015 at more than 68,000 tonnes.
“In China and much of Asia the increasing level of disposable income and a diet moving to protein from plant-based means there is certainly upside,” believes Setter. He said CPC is looking at “the live cattle protocol and how can we supply live cattle into China, we’re looking at boxed beef and carcass beef breakdown in China because of lower labour costs.”
Terra Firma acquired CPC in 2009 and embarked on a turnaround programme which saw the company post a net profit of just under $1 million for the year to March 2015, compared with a $26m loss the previous year.
Reflecting on these numbers, Setter said “we focused on our customers, on cost management, on productivity of spend, on productivity of calves, kilos and a faster turnover of the herd.” In December the company acquired its 20th cattle station.
The cattle business in Australia is poised for change, with the largest private landowner in Australia, Kidman & Co, recently putting 11 cattle stations, more than 100,000 square kilometres of land and 185,000 cattle up for sale. Setter has previously said CPC is interested in parts of Kidman’s business
It has also been reported that Terra Firm is eyeing a sale of CPC and has appointed Barclays to run a process. Setter said Terra Firma will be looking to exit at some point but the firm has been very committed to CPC.