The Australian beef and cattle industry has experienced a year like no other.
For an industry which was arguably hit harder by the drought than any other agri sector, the arrival of the rain had an impact on prices that very few would have predicted, and then disruption from covid-19 to the beef supply chain hit the headlines, particularly in the US.
Meanwhile, throughout the year, the issue of the potential impact of Chinese bans on Australian beef imports continued to loom over the sector, though had no major impact on price.
Perhaps the biggest discussion point in 2020 has been the rise and rise of cattle prices.
The price increase in 2020 has been unparalleled, even compared to the strong 2015-16 upsurge, when the Chinese market opened to more Australian imports.
Despite ongoing predictions by many in the industry that a market correction is imminent, there has still been no sign of one. And as 2021 approaches, the question is: how long this will continue?
Certainly, the fundamentals for cattle prices staying reasonably high are strong, as producers across Australia continue to enthusiastically restock, on the expectation of beef prices remaining elevated.
With forecasts of a wet summer, there is little sign of a lack of feed in most regions. Similarly, the 2020-21 major grain crop will lead to lower feed costs, maintaining the incentive to increase individual herds.
In addition, the slow national herd recovery process means that while cattle supply will gradually increase, it will unavoidably take time. Under ANZ modelling, given a return to optimal female slaughter rates, it could take the national herd until 2028 just to reach the 2015 levels of more than 28 million head.
Given these drivers, there is a reasonable chance that cattle prices could continue climbing, particularly given the weaner sales, which will be held in many regions in coming months, or that any price fall will be minimal. If this trend continues through 2021, and sees producers focus on growing their herds while slaughter numbers remain tight, then a bigger question may be the impact this could have in the medium to longer term, from 2022.
For processors, the ongoing strength of prices presents a challenge which will need to be absorbed somewhere. Although the option does exist to reduce capacity or shifts, this can only be a short-term option.
The outlook for beef exports heading into 2021 continues to be dominated by question marks over the beef trade with China, including the impact of Chinese import bans on several Australian processing operations, as well as competition from South American competitors. In addition, as China’s pig herd continues to rebuild after the worst of the African Swine Fever outbreak, it will be important to watch how much this eats into China’s meat import requirements.
For all the different challenges it has faced over the past three years, the Australian beef industry is in a relatively strong position heading into 2021.
That said, given the circumstances required over the coming year for current prices to prove rewarding, there will be no room for complacency.
Michael Whitehead is head of agribusiness insights, and Viveka Manikonda is a senior associate, at ANZ.