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Beef industry on the cusp of great things

CowThe Australian beef industry is on the cusp of great things, according to specialist agricultural lender, Rabobank.

In a recently released report by the company, it was revealed an  improvement in the weather and drought breaking rains through many cattle producing regions will provide  necessary relief for many producers, and allow the herd rebuilding process to begin.

Other factors contributing to the positive industry forecast include growing international demand, constrained global supply, a depreciating dollar, and trade agreements.

According to Angus Gidley-Baird, report author and senior animal proteins analyst, Rabobank, the Australian beef industry has long been exposed to the supply and demand fluctuations experienced by global drivers and local seasonal conditions.

“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,” he said.

“This would ensure a more stable, longterm environment for the Australian beef industry.”

Production Record slaughter numbers have enabled the industry to tap into growing and lucrative export markets, however, production at this rate, given the herd size, is not sustainable.

The Rabobank report indicates that Australian slaughter rates above eight million head and live exports over one million head cannot continue, given estimated herd numbers.

“The Australian breeding herd is not being replaced, and this will lead to an increasingly rapid reduction in cattle inventory and future production capacity,” Gidley-Baird said.

China exploded onto the Australian beef export scene in 2013, and while the same growth has not been evident in 2014 and into the start of 2015, over the longer term, it has the potential to become one of Australia’s top two beef trading partners, ahead of Japan and Korea.

Chinese sales of beef and veal are currently experiencing the strongest growth of any meat, at 4.8 per cent (CAGR from 1996 to 2014). Rabobank expects the growth in consumption to decline slightly, to 2.2 per cent (CAGR over the next decade), due to a slowing of the economy, although it is still expected to grow faster than other meats.

Adding to the prospects for the Chinese market of becoming Australia’s most important trade destination is the impending Fair Trade Agreement.

Based on the strength in global markets, Rabobank forecasts that Australian Eastern Young Cattle Indicator (EYCI) price is expected to trade in a range of AUD 5/kg to AUD 6/kg cwt range for 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 says.

“With slaughter rates tracking 3.8 per cent higher in the first five months of 2015 than the same period in 2014, we have not seen the initially-expected reduction in supply, with prices fuelled by a particularly strong US market.”

US cattle prices, as the major driver of current domestic prices , are a good indicator of what the near term future price for Australia might be.

“With Australian cattle prices continuing to rise and US prices stabilising, they are set to meet again and return to a more normal relationship within the AUD 5/kg and AUD 6/kg cwt range, and with large price increases already accommodated within the market, it is not expected that further price increases fuelled by restocker demand will be as dramatic as in previous seasons”, he said.

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