Scales in favour of ongoing strong beef bottom line

Scales in favour of ongoing strong beef bottom line


Stock and Land Beef
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Optimism in the air at Angus National Conference.

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THE scales of upward and downward pressure on cattle prices still appear to be weighted in favour of the types of returns that have underpinned a record average farm income for specialist beef producers this financial year.

Just-released Australian Bureau of Agricultural and Resource Economics and Sciences figures showing a $204,000 average income represents the highest in real terms for at least 20 years, which is as far back as the data has been collected, according to Meat and Livestock Australia’s head markets analyst Ben Thomas.

Likely, they were the best ever, he said.

The  2016-17 incomes were a 12 per cent rise from 2015/16, which itself was up 48pc from the previous year.

Speaking at the Angus National Conference in Ballarat today, Mr Thomas said those figures sum up what has been a phenomenal couple of years for the beef industry.

Meat and Livestock Australia's cattle market expert Ben Thomas speaking at the Angus National Conference in Ballarat, Victoria, today.

Meat and Livestock Australia's cattle market expert Ben Thomas speaking at the Angus National Conference in Ballarat, Victoria, today.

And he said while a correction in prices was inevitable, MLA analysis was indicating a settle point in the vicinity of 250 to 300 cents per kilogram liveweight.

That sort of talk is pumping a good deal of optimism into the beef game at the moment, and a desire to invest on farm, judging from the chatter at the conference.

Despite the fact graziers are looking down the barrel of a fairly dim three month rainfall outlook, they were still discussing their concerns about paying too much tax this financial year, with tongue firmly in cheek.

Mr Thomas was one of the first of a high calibre line-up of speakers at the conference, which has attracted 180 delegates from around the country.

So far this year the Eastern Young Cattle Indicator had averaged 100c/kg carcase weight above where it was last year - and those 2016 prices themselves were records, he said.

Most of the expectations for the cattle market were playing out but while the likely trends were clear, the speed of change and market impacts less so, he said.

Mr Thomas outlined a number of positives that would continue to support upward pressure on cattle prices.

The big driver is the supply situation.

“It’s such an influential part of the equation,” he said.

“The record turnoff of 2014 and 15 has had a huge impact - 10.5m head left the system in each of those years.

“Our expectations are for there to be only 7.1m head killed this year.

“There have only been a few times in history when the cattle slaughter has dropped that low.”

Competition for that smaller pool of supply would go along way to supporting the cattle market for the duration of the year, he said.

But there were other, longer term, factors also underpinning upward pressure on prices.

The Brazilian meat scandal, and ensuing temporary ban on Brazilian product going into markets like China, highlighted the fortunate position Australia is in with its fantastic quality and integrity systems.

Those systems ensure that regardless of where in the world Australian beef is consumed, the highest quality is ensured, Mr Thomas said.

Then there is the phenomenal growth of the middle class in Asia.

Estimates for 2030, have more than 3 billion people in Asia falling into that bracket.

These are the people who have the money to transition from buying meat out of a wet market to buying product out of supermarkets where there are cold chains in place, Mr Thomas explained.

That ties in with another one of those longer term trends that will continue to support the Australian cattle market - the type of beef  people are buying in global markets.

Chilled grassfed beef exports - the premium product - are rising.

On the side of the scales posing challenges is the fact the Bureau of Meteorology is forecasting only a 30 per cent chance of most cattle growing regions receiving above average rain for the next three months.

“If that comes to fruition, it will place downward pressure on the market,” Mr Thomas said.

“However, considering how low the cattle herd, sheep flock and goat numbers are, there won’t be the same flood of livestock onto the market. There just aren’t the numbers out there to cause a significant downturn in prices.”

Competitors in our international markets was another challenge.

The rise in American exports as their production ramps up, Brazilian exports back in full swing and India - which Mr Thomas said was a ‘very overlooked competitor” - all added up to pressure on Australian product.

“India and Brazil will put a lot of pressure on secondary cuts and the lower end of the market while the US will put pressure on our exports to higher value northern Asian markets,” Mr Thomas said.

“A correction is inevitable, however we don’t think prices will go back to where they were.”

The fact tariffs into three of our main markets, China, Japan and Korea, will decline for the next 15 years would act to help make Australian product more competitive, he said.

And the Australian dollar is playing ball.

“The dollar predictions are always wide ranging but those from the major banks for the next 12 to 18 months are for a continuance of the mid 70s range, which would prove another positive for beef producers,” Mr Thomas said.

The story Scales in favour of ongoing strong beef bottom line first appeared on Farm Online.

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