Season to determine Vic’s herd rebuild

Seasonal conditions to determine nation’s herd rebuild

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Promising factors: Rural Bank's Alexandra Gartmann says reduced supply will support cattle prices.

Promising factors: Rural Bank's Alexandra Gartmann says reduced supply will support cattle prices.

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Seasonal conditions have prevented Australian cattle producers from retaining stock and rebuilding herd numbers.

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Australian cattle producers entered 2018 with intentions to retain stock and rebuild herd numbers, but seasonal conditions have been poor in many regions.

Many producers opted to destock in response to low rainfall and high feed costs, which led to slaughter rates trending higher, up 10.2 per cent for the year to October.

Increased supply combined with weaker restocker demand led to an easing in prices.

The Eastern Young Cattle Indicator fell 22pc from a high of 567c/kg in March to a low of 445c/kg in August. Prices reached their lowest point since April 2015.

Even so, the annual average price of 509c/kg is still high from a historical perspective at 15pc above the 10-year average.

Prices eased but avoided a collapse in part due to growing export demand, particularly from China, Japan and South Korea. The support from export markets was surprising given 2018 was a record year for global beef production and exports.

Fortunately, demand rose to absorb the higher supply. Australian export volumes were up 12.5pc for the year to October, but despite this Australian beef still attracted a 2.7 per cent increase in average unit value.

Cattle prices in 2019 will be supported by lower supply and continued strong export demand. Supply should be lower than 2018 with producers looking to manage current herd sizes until seasonal conditions improve.

An improvement in conditions will allow producers to retain stock, particularly females, tightening supply further.

Global supply and demand factors should offer some support for Australian prices with import demand expected to match another record year of beef production and exports.

Seasonal conditions will be the most significant factor driving the direction of prices in 2019.

Dry conditions would see prices continue to ease and follow the lower 68pc confidence interval, falling below 500c/kg.

Significant rainfall would see a return to herd rebuilding activity. A tightening of supply and strengthened restocker demand would see prices rise along the upper 68pc confidence interval towards 600c/kg.

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