Australian cattle industry projections mid year update
Tim McRae – Economist, International Markets and Economic Services10th August 2009
A tumultuous past 12 months
• The global economic and financial environment got very ugly, very quickly - recessions in US, Japan, Europe…and almost Australia
• Massive currency fluctuations…the A$ went from 98.5US¢ (July 08), to 61.2US¢ (Oct 08) and then back to 84.5US¢ (Aug 09).
• Demand for beef was altered in almost all markets, with consumers trading down purchases towards cheaper beef cuts and items…strong demand in fast food sector.
• Very difficult beef trading conditions for Australian exporters, compounded by the plunge in hide and co-product returns.
• High input costs subsided – grain, finance, fuel etc…
•Floods in the north, drought in the south…but overall an improvement in conditions for the cattle industry.
Changes from January projections
Given these changes in the supply and demand landscape, changes from the January projections include…
• Contraction in beef and veal exports for 2009 – back 4% to 950,000 tonnes swt
• Cattle slaughter revised back 3%, or 250,000 head, as producers retain cattle
• Average carcase weights revised 3kg lower, to 270kg/head
But medium/long term outlook remain relatively unaltered …
• Australian herd expand toward 30 million head
• Export demand to recover from 2010 onwards
• Global beef demand/supply balance to tighten, lifting prices
Economic growth, 2009 a shocker…but things to improve
Source: International Monetary Fund, World Economic Update - July 2009
World US EU Japan UK CIS China India ASEAN-5
0
5
10
15
-5
-10
year-on-year % change
2007 2008 2009e 2010f
e = estimate f = forecast
A$ plummets…but then bounces back
Source: RBA
2000 2001 2002 2003 2004 2005 2006 2007 2008 20090.4
0.5
0.6
0.7
0.8
0.9
1
1.1A$/US$
40
50
60
70
80
90
100
110A$/Yen
A$/US$ A$/Yen
Returns* from co-products fall
Source: MLA's NLRS & Kurrajong Meat Technology
2008 2009 2008 2009 2008 20090
50
100
150
200
250
300A$/head
hides
tallow
meat meal
offals
grassfed Japan steer grain fed steer US cow
* June average
Potential return
But producers have seen a fall in costs
Source: ABARE
98 99 00 01 02 03 04 05 06 07 08 09s 10f
year ending June
50
100
150
200
250
300Index 1997-98 = 100
fodder and feedstuff prices
fertiliser price
store and breeding stock
fuel and lubricant prices
s = subject to revisionf = forecast
Australian saleyard cattle prices have improved in the past 3 months - EYCI
Source: NLRS
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec250
300
350
400A¢/kg cwt
2009
2008
2004-08 average
1999-03 average
Lower costs boost farm cash incomes
Source: ABARE
79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09e0
50
100
150
200$'000 (2008-09 dollars)
northern southern
e = estimate
Not a bad past 12 months…especially in northern Australia
Good past 3 months…but much more needed in southern Australia
Australian cattle herd to expand towards 30 million head
Source: ABS, MLA forecasts
93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09f 10f 11f 12f 13f
As at 30 June, as at 31 March up until 1999
16
18
20
22
24
26
28
30
32million head
f = forecasts
Record proportion of female cattle to underpin herd growth
Source: ABS
70 75 80 85 90 95 00 05 08
As at 30 June, as at 31 March up until 1999
8
10
12
14
16million head
30
35
40
45
50
55
60 female % of national herd
beef cows and heifers one year and older
percentage of national beef herd
Australian herd continues to move north
Source: ABS, MLA forecast
95 96 97 98 99 00 01census
02 03 04 05 06census
07 08 09f 10f 11f 12f 13f
As at 30 June, as at 31 March up until 1999
10
13
16
19million head
Qld, NT & WA
NSW, Vic, SA & Tas
f = forecasts
forecast
Australian cattle turnoff to recover in 2010
Source: ABS, MLA forecasts
91 93 95 97 99 01 03 05 07 09f 11f 13f0
1
2
3
4
5million head
male cattle female cattle live export
f = forecasts
forecast
Australian beef and veal production to steadily rise
Source: ABS, MLA forecasts
91 93 95 97 99 01 03 05 07 09f 11f 13f0
1
2
3million tonnes cwt
0
50
100
150
200
250
300
350carcase weight kg/head
beef & veal production carcase weights
f = forecasts
Australian cattle on feed numbers to slowly recover
Source: ALFA, MLA
M J S DM J S DM J S DM J S DM J S DM J S DM J S DM J S DM J S DM J00 01 02 03 04 05 06 07 08 09
250
500
750
1,000'000 head
Beef exports to expand from 2010 onwards
Source: DAFF, ABS, MLA forecasts
91 93 95 97 99 01 03 05 07 09f 11f 13f0
200
400
600
800
1,000
1,200'000 tonnes swt
50
55
60
65
70% of production
exports % production
f = forecasts
Australian beef exports to Japan to increase 3% in 2010
Source: DAFF volume, ABS value, MLA forecasts
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09f10f0
100
200
300
400
500'000 tonnes swt
0
0.5
1
1.5
2
2.5A$ billion
exports value
f = forecast
Export prices to Japan fail to benefit from lower A$ in first half of 2009
, Source: RBA, MLA
J F M A M J J A S O N D J F M A M J J0.8
1
1.2
1.4
1.6 US$/A$
400
500
600
700
800A¢/kg FOB
US$/A$
chilled grassfed fullset
chilled shortfed fullset
2008 2009
Grainfed exports and prices to Japan
Source: MLA, DAFF
2005 2006 2007 2008 20090
4
8
12
16
20
24'000 tonnes swt
300
400
500
600
700
800
900
1000A¢/kg FAS
grainfed exports
chilled shortfed fullset price
Australian beef exports to Korea to face increase competition
Source: DAFF volume, ABS value, MLA forecasts
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09f10f0
20
40
60
80
100
120
140
160'000 tonnes swt
0
200
400
600
800
1000A$ million
exports value
f = forecast
US to increase Korea presence in 2010
Source: KOTIS, MLA estimates
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09f 10f0
50
100
150
200
250
300
350'000 tonnes swt
Australia US other
f = forecast
Australian beef exports to US to recover 13% in 2010
Source: DAFF volume, ABS value, MLA forecasts
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 0809f10f0
100
200
300
400
500'000 tonnes swt
0
0.5
1
1.5
2A$ billion
exports value
f = forecast
US cattle herd declining, with production falling
Source: USDA, CattleFax projections
81 83 85 87 89 91 93 95 97 99 01 03 05 07 09f 11f
As at 1 January
80
90
100
110
120million head
f = forecast
Australian exports to Indonesia a highlight…
92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09f 10f0
10
20
30
40
50'000 tonnes swt
0
20
40
60
80
100
120A$ million
volume value
Source: DAFF volume, ABS value, MLA f = forecast
Restrained exports to Russia … 2008 was “out of the box”
98 99 00 01 02 03 04 05 06 07 08 09f 10f0
25
50
75'000 tonnes swt
0
50
100
150
200
250
300
350A$ million
Source: DAFF volume, ABS value, MLA f = forecast
Australian beef exports to China and Hong Kong to record levels
92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09f 10f0
2
4
6
8
10
12
14'000 tonnes swt
China
Hong Kong
Source: DAFF, MLA f = forecast
Australian beef exports to Middle East to consolidate growth
95 96 97 98 99 00 01 02 03 04 05 06 07 08 09f 10f0
5
10
15
20'000 tonnes swt
Source: DAFF, MLA f = forecast
Australian beef consumption to decline
Source: MLA from ABS production and DAFF trade data, ABARE
95 96 97 98 99 00 01 02 03 04 05 06 07 08 09f 10f 11f 12f 13f500
550
600
650
700
750
800'000 tonnes cwt
600
800
1,000
1,200
1,400
1,600
1,800A¢/kg
beef retail price beef consumption
f = forecasts
Australian live cattle export to register steady growth
Source: ABS, MLA forecasts
91 93 95 97 99 01 03 05 07 09f 11f 13f0
200
400
600
800
1,000
1,200'000 head
0
100
200
300
400
500
600
700$A million
numbers value
f = forecasts
Indonesia will continue to underpin cattle shipments
Source: ABS, MLA forecasts
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09f10f0
100
200
300
400
500
600
700'000 head
0
100
200
300
400
500$A million
numbers value
f = forecasts
Beef and cattle industry overview“Exporters are currently grappling with tight livestock supplies, higher Australian dollar,
weak co-product prices and low import prices. It probably won’t be until 2010 that exports will start to really gather steam. Over the medium to long term, Australia’s slowly expanding beef production is forecast to be met by rising global demand, especially as economic conditions improve in Australia’s major beef markets,”
Through to 2013:
• Further herd growth, underpinned by stronger prices and profitability
• Feedlot industry to steadily recover, reaching record numbers in late 2011
• Beef and veal exports to exceed 1 million tonnes swt in 2010
• Live cattle exports to resume growth in 2010, reaching 850,000 head
However much depends upon:
• Speed of economic recovery – US, Japan, Korea, Australia
• Value of the A$
• Seasonal factors