Challenges ahead but Australian beef industry’s future is bright

Key fundamentals for a strong Australian beef sector including strong international demand, constrained global supply, a depreciating dollar and trade agreements are falling into place.

Strong international demand, constrained global supply, a depreciating dollar and trade agreements all suggest that the outlook for the Australian beef industry is bright, according to an August report from Rabobank.

“While depressed prices have been driven by short-term high domestic supply, the Australian industry is now in a position to capitalise on strong global demand, providing an opportunity to develop an industry with a premium, value-added product,” Angus Gidley-Baird, report author and Rabobank senior animal proteins analyst, said in a statement.

As recently reported by Agri Investor, cattle prices in Australia recently set record highs, increasing more than 220 percent over the year, with some market participants predicting A$6 per kg. Rabobank expects the price to trade in the range of A$5 to A$6 a kg over the next 12 to 24 months. “Australia has the ability to capitalise on potential value-added characteristics and gain greater access to more markets in a supply-constrained environment in order to support ongoing export demand and higher prices,” Gidley-Baird said.

However the report cautions that weather and climatic challenges will be a critical factor in Australia’s ability to capitalise on market opportunities. It warns that an “improvement in the weather and drought-breaking rains through many cattle-producing regions” is needed to allow the herd rebuilding process to begin. The report also notes that while record slaughter numbers have enabled the industry to access lucrative export markets, production at the same rate is not sustainable. “The Australian breeding herd is not being replaced, and this will lead to an increasingly rapid reduction in cattle inventory and future production capacity,” according to Gidley-Baird.

China looms large in any discussion about the future of Australia’s cattle market. The report says the same growth which powered China’s entry into the market in 2013 has not been evident in 2014 and into the start of 2015. It adds a lack of infrastructure investment in the country is holding back the development of the live cattle and feeder cattle trade. The  large number of cattle that would make such a trade viable requires a build-up of infrastructure capacity. Nevertheless, China has the potential to become one of Australia’s top two beef trading partners, ahead of Japan and South Korea, over the longer term.

Read Australian beef industry – on the cusp of great things.