Heading into 2015, the Australian beef industry was expecting to undergo a significant reduction in slaughter, beef production and exports as producers began rebuilding herds after more than two years of drought-induced slaughter levels that were the largest since the 1970s. At the beginning of the year, Meat and Livestock Australia (MLA) projected a year-over-year decline of 14 percent in beef production and a 20 percent drop in exports from the record levels of 2014.
Through the first half of 2015, this scenario had yet to materialize. Slaughter levels remained record-large, with disappointing rainfall dampening the prospects for herd rebuilding. Beef exports did not skip a beat, as large supplies and a weak Australian dollar helped push first-half export volume to 738,166 metric tons (mt), 9 percent ahead of last year’s record pace. Exports were also buoyed by strong demand for grinding beef in the United States and lower import duties in Japan, which were achieved through the Japan-Australia Economic Partnership Agreement that took effect in January.
A slowdown finally began to surface in July, though exports were still steady with last year’s large volume at 121,568 mt. In August, exports dipped below year-ago levels for only the second time since 2013, with volume slowing by 5 percent to 106,010 mt.
The United States remains the big growth market for Australia’s exports, with exports through August up 37 percent from a year ago to 309,926 mt. The combination of high lean beef prices and the strong U.S. dollar is pulling more beef into the United States – in fact, Australia will fill its duty-free quota for imports entering the U.S. for the first time since the U.S.-Australia Free Trade Agreement was implemented in 2005. Exports to Australia’s other top markets have grown at a more modest pace compared to last year, with results through August as follows:
| Japan | 187,487 mt | +1 percent |
| South Korea | 105,845 mt | +8 percent |
| China | 94,696 mt | +7 percent |
Exports to Korea have been supported by high domestic beef prices and implementation of the Korea-Australia Free Trade Agreement. However, U.S. beef has captured a greater share of Korea’s chilled imports as it regains popularity with retail consumers. While U.S. beef remains locked out of the Chinese market, Australia is its largest supplier.
January-August exports trended lower for many of Australia’s smaller markets, including Indonesia, where erratic import policies create great uncertainty for the trade. U.S. beef has gained market share in Taiwan while imports from Australia have slowed. But Australia is shipping much larger volumes to Canada, reflecting a situation similar to the U.S. – tight supplies of lean grinding beef due to significantly reduced cow slaughter.
For the final quarter of this year, MLA expects Australia’s beef production to be down about 7 percent from last year’s record pace. This should support continued strength in Australia’s cattle and beef prices as production and exportable supplies slowly return to more normal levels. During the second week of September, Australia’s cattle indicator price kept its record-setting pace, averaging A$5.83/kg, up 61 percent from last year. In U.S. dollars, prices were $1.86 per pound, up 22 percent and reflecting the ever-weakening Australian dollar.
Australia’s cattle feeders are estimated to be losing money, pressured by higher feeder cattle prices and feed costs that remain relatively high. Feedlot capacity utilization is still historically high, so the situation will likely worsen as feeders start to compete to fill pens. The latest inventory survey showed near-record numbers at 956,927 head, up 13 percent year-over-year.
Data sources: Australian Department of Agriculture Fisheries and Forestry and Meat and Livestock Australia