Beef prices predicted to hit 35-year high

Beef prices predicted to hit 35-year high

DSC_0737

In a first for Australia, agricultural production is tipped to pass $60 billion next year, according to the Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES).

In its annual update, ABARES forecasts farm production to climb three per cent this year, ringing in $60.3 billion for 2016-17.

Despite an expected beef and veal production reduction of 2.4 million tonnes for 2016, prices are expected to stay high this year. The forecast indicates the weighted average saleyard price of cattle will reach 505 cents per kilogram dressed weight. If this prediction rings true, it will be the highest price in 35 years.

This number is expected to climb higher still in 2016-17 to 530 cents per kilogram.

Rob Stubbs from McAllister Saunderson Stubbs said prices have continued to stay strong in the first part of 2016, with the Eastern Young Cattle Indicator (EYCI) listing an impressive 596 cents per kilogram dressed weight.

The EYCI is the general benchmark of Australian cattle prices, produced daily by Meat and Livestock Australia’s National Livestock Reporting Service. It includes vealer and yearling heifers and steers, grade score C2 or C3, 200kg+ liveweight from saleyards in NSW, QLD and VIC.

“It’s still excellent, this time last year it [EYCI] was at 420 cents,” said Mr Stubbs.

“As a comparison, most producers are getting $300 more per head than this time last year, which as a percentage is excellent.”

He says that many local producers are choosing to make hay while the sun shines.

“Once the local producers have got the cattle to the right specifications, they will be taking the money on offer, as it’s hard to hold them once they’ve reached that point, especially in drying conditions,” explains Mr Stubbs.

“Obviously some will wait until later in the season when weather conditions improve, to try to reap further rewards later, but it is definitely hard to knock back the sort of money we are seeing now.”

Mr Stubbs says conversations with others in the agriculture industry have indicated farmers are willing to reinvest in their cattle to achieve the best outcomes.

“I was speaking to a drench rep and he said farmers have been enquiring about drenches and vaccines where they normally wouldn’t,” said Mr Stubbs.

“In the current market, farmers are realising the returns they can make, and can see the value in spending money to achieve those returns.”

ABARES has noted a reduction in cattle herd numbers in Australia, based on stand-out prices for beef last year, teamed with drought in much of the country. A further seven per cent drop in beef production is anticipated for 2016-17, but ABARES expects a steady increase in cattle numbers as El Nino weakens. Industry professionals say early 2016 rainfall has been a promising sign, encouraging graziers to restock cattle to maintain high sale prices.

The beef export market is expected to peak in emerging markets and dip in established ones, with Korea providing the most hope with anticipated market growth of 11 per cent this year and three per cent for 2016-17.

The United States and Japan, traditionally two of the highest Australian beef consumers, will be reducing their demand this year. Australia is expected to ship 250,000 tonnes of beef and veal to the US in the first half of this year, a huge 26 per cent less than last year.

But ABARES warned Australia will face declining demand from two of its biggest beef export markets, the United States and Japan by 2020. A strong US dollar is expected to force Americans back to their domestic market.

Japan’s demand for Australian beef is expected to dip this year due to high prices, with an eight per cent drop to 280,000 tonnes expected for this financial year.

Australian beef is expensive in Japan and that’s affecting demand, despite a recent trade deal that was supposed to make Aussie beef cheaper. ABARES expects Australian beef exports to Japan will fall 8 per cent to 280,000 tonnes this financial year. While Japanese demand should pick up a little next year, it is not expected to be a high consumer again for at least five years.

In the Chinese market, Australia is expected to experience increases of 20 per cent this year, but could struggle to get the upper hand against rival Brazil, who entered the market recently and have proved a force to be reckoned with.

Next year, Australian live cattle exports should increase four per cent to both Indonesia and Vietnam. Australian live exports to Indonesia experienced a nine per cent dip in the first quarter of 2015-16 after the Indonesian Government introduced import quotas.

On the grain front, ABARES expects the gross value of all Australian crop production to increase four per cent next year, to $29.5 billion, providing seasonal conditions continue to improve.

Despite this, high global supply and falling demand will mean Australian export prices dip slightly across coarse grains and wheat. Because of this, there will be less incentive for farmers to plant coarse grains, electing instead to plant canola due to greater expected return on investment.