2 May 2006
After a strong performance in 2005, the outlook for Australian beef remains positive in 2006 with export earnings set to rise and cattle prices remaining at record levels, according to a new industry report by the world's leading agribusiness bank, Rabobank.
However the report, produced to coincide with the Beef Australia 2006 expo in Rockhampton this week (1-7 May), also warns that complacency may soon pose the biggest threat to cattle producers and processors, with many of the current factors thwarting the industry's major competitors in North and South America heading for resolution in 2007.
The report shows that Australian beef exports performed strongly in 2005 with total exports reaching 914,000 tonnes shipped weight, valued at AUD 4.6 billion, a one per cent increase on 2004.
The report's author, Bill Cordingley, Senior Analyst (Animal Proteins) with Rabobank's Food and Agribusiness Research (FAR) division, says that Australian beef export earnings are at record highs due to Australia's almost exclusive access to the Pacific Basin's highest value export markets, particularly Japan and South Korea, where customers remain deeply concerned over beef quality and the reliability of supply.
Australian beef dominates the South Korean market, representing 72 per cent of all imports in 2005, up from 56 per cent in 2004, and has won an almost 90 per cent share of Japanese beef imports, following outbreaks of Bovine Spongiform Encephalopathy (BSE) in the US and Canada in 2003. One non-compliant shipment from the US in January this year caused Japan to re-impose indefinitely its trade ban on US beef, undoing two years of talks aimed at resuming exports.
South America, until recently the dominant global force in beef exports, also faces an uncertain year, with the return of Foot and Mouth Disease (FMD) in areas of Brazil, and the Argentinean government's recent decision to suspend beef exports for 180 days in an attempt to reduce domestic prices, a policy move which has seriously undermined export customer confidence.
"While these events work to Australia's advantage in the short term, they also highlight the fragility of global markets, and the Australian beef industry cannot afford to be complacent," warns Mr Cordingley. "Conditions will inevitably tighten from 2007, with growth forecast in US beef production and the expected restoration of US access to the Japanese market. Such competitive challenges will push down global prices, making productivity gains, quality improvements and remaining disease-free the essential priorities for the Australian beef industry."
The report says that the industry starts from a point of strength in responding to these uncertain market conditions. "Australian beef is recognised around the world for its superior quality, safety and disease freedom," says Mr Cordingley, "and these factors have helped to support the industry's success in the face of a strong dollar position over the last 18 months."
"Export-reliant industries face a more complex set of challenges than those focused on the domestic market, making them more difficult to predict and manage," says Mr Cordingley. "Such factors are important to the Australian beef industry, heavily reliant on international demand with 65 per cent of production exported. To date, the industry has been a stand out performer in managing this risk and maximising its global opportunity. But global competition will inevitably intensify in the medium term and the likelihood is that Australian cattle prices will be forced lower as a result."
In particular, the growth in lot feeding over the last two decades has coincided with the rapid expansion in beef exports to North Asian markets, and underpinned Australia's ability consistently to deliver stability of quality and supply. "There is little doubt that the feedlot sector will play an increasingly important and dominant role in the Australian cattle production chain in years to come," says Mr Cordingley.
However, lot feeders face a number of significant challenges in the coming years. The report warns that while grass-fed systems in South America currently remain more efficient than grain-fed, greater access to the high value US, Japanese and Korean markets could encourage South American producers, particularly Argentina, to increase production of high quality grain fed beef.
In addition, domestic growth in lot-feeding relies on grain production being high and prices low to allow the sector to outbid grass finishers to secure cattle numbers. Falling grain supplies, for instance through drought, or higher demand from alternative grain users like ethanol producers, could impact on the ability of feedlots to meet growth expectations. The report shows also that volatile cattle prices, as experienced domestically in 2005, can make trade difficult for feedlots, with the record highs in August limiting access to cattle numbers.
The Rabobank report also points to the significant role played by relative currency values in determining competitiveness in beef export markets. In recent years, this has been less important to Australian beef export prices with the exclusion of US and Canadian beef from high value North Asian markets. Their gradual return will bring more competitive pressure to bear, but the appreciation of the Brazilian real in recent months and, more importantly, any signs of weakness in the Australian dollar relative to the US and Korean currencies, will aid Australian competitiveness in these key markets.
Mr Cordingley concludes that "for both processors and producers, the only certainty is that continued gains in productivity, while maintaining product quality, will generate financial rewards that are secure from the vagaries of international markets."
Rabobank Australia is a part of the international Rabobank Group, the world's leading specialist in food and agribusiness banking. Rabobank has more than 100 years' experience providing customised banking and finance solutions to businesses involved in all aspects of food and agribusiness. Rabobank has a AAA credit rating and, in recent years, has twice been awarded the title of the world's safest bank by Global Finance magazine. Rabobank operates in 35 countries, servicing the needs of more than nine million clients worldwide through a network of more than 1500 offices and branches. Rabobank Australia is one of Australia's leading rural lenders and a significant provider of business and corporate banking and financial services to the Australian food and agribusiness sector. The bank has 46 branches throughout Australia.
Contact
For further information please contact Denise Shaw, Public Relations Manager (Tel: +61 2 8233 8744) or email on sydney.mediarelations@rabobank.com.