Highlights

The Australian beef cattle herd is expected to begin rebuilding in 2017, following record years of slaughter in response to high overseas prices and poor pasture conditions. This turnaround reflects the sharp break in drought conditions from mid-2016, especially in Queensland and NSW. The beef cattle herd size dropped to an estimated 26 million in 2016 but is expected by Post to gradually recover from late 2017 as cow and calf slaughter declines. Beef and veal production is estimated by Post to have declined to 2.2 million MT over 2016 and to reach 2.0 million MT in 2017. Australian exports of beef and veal are therefore forecast to decline to 1.4 million MT despite continued strong international demand. Pork production is stable and focused on fresh pork products while imports supply most of the market for processed pork products.

EXECUTIVE SUMMARY

Due to a severe drought from 2011, poor pastures and rising international prices, the size of the Australian beef cattle herd fell to a 20-year low of 26 million in 2016. Seasonal conditions turned around sharply in mid-2016 with above average rainfall which is expected to continue for the rest of the year. As a result, pastures are recovering across the country and slaughter rates are forecast to decline to more levels in 2017 and beyond. Continuing strong international demand for beef and live cattle has pushed livestock prices to new highs and slowed the rate of restocking due to competition for breeding stock. High domestic prices for beef in recent years has increased consumption of pork and chicken, reinforcing a long-term trend.

Australian beef and veal production is forecast to decline significantly to two million MT in 2017 due to supply constraints and the beginning of the herd rebuild as farmers retain breeding stock. The retention of cattle in feedlots due to low grain prices and a shortage of feeder cattle means that higher average carcass weights will offset lower slaughter numbers. Beef cattle processors are rationalizing their operations in response to lower supplies. Beef and veal exports are forecast due to lower production with international demand still strong. Australia is expected to remain the major beef exporter to the US market, but volumes will fall.

High beef prices have provided support for the domestic pork industry, especially for fresh meat which cannot be directly imported but must be processed locally. Swine numbers are relatively stable although the number of sows has been slightly revised upwards. Imports supply most of the market for processed pork products. Post has sought to expand market access, with U.S. microwave bacon exports approved in 2016. Negotiations have continued over biosecurity controls which currently prevent imports of fresh pork from the United States and other countries.

SEASONAL OUTLOOK

In Australia, cattle are predominantly grass-fed and the availability of pasture is critical to carrying capacity. Over the three years to mid-2016, drought conditions affected around one third of beef cattle farms across Australia. This contributed to high cattle turn-off (slaughter and live cattle exports) as farmers faced feed shortages while export markets offered high prices. Over this period, the number of grain-fed cattle in feedlots increased due to adverse seasonal conditions and the need to finish cattle before market.

Adverse seasonal conditions appear to have ended in mid-2016 due to heavy and continued rainfall. Since June 2016, few regions have received below average rainfall and many received record falls and lower average temperatures. The seasonal outlook for August to October is for higher than average rainfall, especially in Queensland and NSW, which are the States most affected by the previous drought. Current climate conditions in Australia are being influenced by a strong negative Indian Ocean Dipole, continued cooling of tropical Pacific Ocean waters, and very warm sea surface temperatures surrounding northern and eastern Australia. Extensive rainfall in most regions has removed virtually all short-term rainfall deficiencies and significantly improved soil moisture conditions for the pasture and feed grain industries. Improved pasture growth and rainfall in Queensland and NSW. Improved seasonal conditions and grass cover in most beef producing regions will support lower slaughter rates and encourage gradual herd rebuilding.

CATTLE

Cattle Numbers

In 2016, the size of the Australian beef cattle herd fell to a two decade low of 26 million head. The decline in the national herd is expected by Post to be stopped because of lower cow and calf slaughter numbers and the considerable improvement in seasonal conditions and pasture. The turnaround in the female slaughter is a clear indicator of the intention of producers to restock but high livestock prices has inhibited this intention despite improving pasture conditions and low grain prices.

Increasing cattle and beef prices and a feed shortage in northern Australia contributed to the high slaughter rate over the three years to 2015. Mixed beef and grain farms in Queensland and northern NSW were especially affected by the drought and accounted for over 40 percent of total cattle turn-off in northern Australia. More recently, this region has benefited especially from improved rainfall and significant pasture growth, providing an opportunity for stock retention. High stock prices still provide an incentive to some producers for turn-off, but also encourage others to retain livestock for weight gain and breeding purposes. A continuing improvement in seasonal conditions is needed for herd rebuilding to gain momentum.

Currently, cattle supplies to processing facilities have tightened due to the smaller national herd and the trend towards stock retention. Competition between beef processors and live exporters for stock has increased significantly. In August 2016, the Eastern Young Cattle Indicator (EYCI) reached a new record of over A$7.006 cents per kilogram reflecting competition for livestock, especially by re-stockers.

Cattle Slaughter

In 2016, Australian cattle slaughter is expected to decline from historic highs in previous years to be 8.15 million head, around the same as the official forecast. Slaughter is forecast to decline to 7.4 million in 2017 due to improving seasonal conditions and a greater preference for stock retention in pursuit of herd rebuilding. Post estimates that cow slaughter in 2016 will slow to 3.55 million head (44 percent of total slaughter) as female stock is increasingly retained. This is a revision to the official forecast of 3.9 million because of the sudden turnaround in seasonal conditions and the rapidly falling female slaughter rate, which is forecast to continue. In 2017, Post has forecast female slaughter to fall to 3.4 million as stock is retained for herd rebuilding.

For the same reasons, calf slaughter is expected to decline to 0.55 million, down from the official estimate of 0.6 million. Post has forecast calf slaughter to decline further in 2017 to 0.5 million as producers retain stock to take advantage of much better pasture conditions. Other slaughter (mostly steers) is expected become more significant at 4.05 million head, matching the official estimate. Post has forecast other slaughter to decline to 3.5 million in 2017 due to declining supplies of cattle which will further support higher livestock prices in Australia.

Beef and Veal Production

Beef and veal production is estimated by Post at 2.2 million MT in 2016, around the same as the official estimate. This decline reflects the continued fall in slaughter numbers and diminished size of the national herd. An increase in average carcass weights is expected because of the improvement in pasture conditions, low grain prices and a decline in female cattle being processed. Post forecast that beef and veal production in 2017 will decline further to 1.4 million MT as a result of the continuation of these trends.

Consumption

In 2016, beef consumption is expected to fall slightly due to supply shortages and higher retail prices in Australia. Retail beef prices rose by an estimated ten percent during 2015 due to higher global beef prices, leading to a significant fall in domestic beef consumption. In 2016, higher red meat prices mean that domestic per capita consumption of alternative meats such as chicken and pork is likely to increase further, continuing a long-term trend. The ratio of retail beef prices to chicken in mid-2016 was the highest on record since 1970.

Trade

In 2016, Post estimates that beef exports will fall to 1.5 million MT, in line with official forecast. In 2017, beef exports are forecast to decline further to 1.4 million MT due to a shortage of supplies and herd re-building rather than lower international demand. In recent years, Australian exports have been focused on markets in the United States, Japan and Korea, but exports to China could increase in the future.

The US Beef Market

Australia is the largest supplier of imported beef into the United States, which is the major beef export market for Australian producers. Around 70 percent of Australian beef exports to the US market are manufacturing beef, which is used in ground beef products or for further processing. In 2016 and beyond, US demand for Australian beef exports are expected to decline as domestic production increases, while supply constraints also inhibit exports from Australia.

The Japanese Beef Market

Australia is a major supplier to the Japanese beef market; with over a 50 percent share in 2016 although this is declining. Japan accounted for one fifth of Australian beef exports in 2015 and was its major market for grain-fed beef. In 2016, Post expects Australian exporters to face more competition from US exporters although tariffs on exports of fresh beef from Australia to Japan have fallen from 38.5 percent to 30.5 percent under the bilateral FTA.

The Korean Beef Market

Australia's beef exports to Korea grew by 30 percent in 2015 but Australian exporters face greater competition from U.S. beef exporters which retain a five percentage point advantage over Australian exporters into the Korean beef market due to the earlier implementation of the US-Korea FTA.

The Chinese Beef Market

Post expects Australian beef and veal exports to China to increase by around ten percent in 2016 as market access is expanded under the bilateral FTA. Australia's beef exports into the Chinese market have focused on supplying high-value restaurants and the food services industry.

Exports of Live Cattle

In 2016, Australian live cattle exports are expected to be stable at 1.1 million head despite ongoing supply constraints because of the smaller Australian cattle herd. In recent years, live cattle exports have become more significant and accounted for 12 percent of total turn-off in 2015. Indonesia has always been the major market for live cattle exporters because of its proximity and its preference for lower weight feeder cattle which can be finished in that country.

Production, Supply and Distribution Statistics:

Animal Numbers, Cattle

2015

2016

2017

Market Beginning Year

Jan 2015

Jan 2016

Jan 2017

USDA

Official

New

Post

USDA

Official

New

Post

USDA

Official

New

Post

Total Cattle Beg.

29102

29102

27682

27682

0

27582

Dairy Cows Beg.

1710

1710

1710

1710

0

1710

Beef Cows Beg.

13200

13200

13100

1310

0

13100

Production (Calf

9664

9664

9200

9200

0

9200

Total Imports

0

0

0

0

0

0

Total Supply

38766

38766

36882

36882

0

36782

Total Exports

1336

1336

1100

1100

0

1100

Cow Slaughter

4450

4450

3450

3550

0

3400

Calf Slaughter

667

667

625

550

0

500

Other Slaughter

4558

4558

4050

4050

0

3500

Total Slaughter

9675

9675

8125

8150

0

7400

Loss

73

73

50

50

0

50

Ending Inventories

27682

27682

27607

27582

0

28232

Total Distribution

38766

38766

36882

36882

0

36782

Animal Numbers, Cattle

2015

2016

2017

Market Beginning Year

Jan 2015

Jan 2016

Jan 2017

USDA

Official

New

Post

USDA

Official

New

Post

USDA

Official

New

Post

Slaughter

9696

9675

8125

8150

0

7400

Beginning Stocks

55

55

26

26

0

32

Production

2547

2547

2180

2200

0

2000

Total Imports

13

13

16

16

0

16

Total Supply

2615

2615

2222

2242

0

2048

Total Exports

1854

1854

1525

1525

0

1400

Human Dom.

735

735

685

685

0

645

Other Use, Losses

0

0

0

0

0

0

Total Dom.

735

735

685

685

0

645

Ending Stocks

26

26

12

32

0

3

Total Distribution

2615

2615

2222

2242

0

2048

SWINE AND PORK

Post expects the size of the Australian pig crop to be stable at 5.25 million in 2017, the same as the official estimate for 2016. Post expects pig slaughter to be 5.1 million head, the same as the official estimate for 2016. In 2017, Post expects pork production to be unchanged compared to the previous year, at 385,000 MT.

Currently, the pork processing sector reportedly consists of 45 abattoirs, of which the largest seven accounts for over 80 percent of pigs processed in Australia. Larger pig farms in Australia have tended to expand capacity due to higher prices for beef and a switch to other meats including pork. At the same time, smaller pig producers have been leaving the industry.

Larger pig farms tend to be vertically integrated, w also contracting out pig production in order to specialize in processing activities. The impact of this change is likely to be to increase the efficiency of the industry, especially as pig farms become larger in scale. In late 2014 JBS acquired the largest domestic producer of ham, bacon and other processed pork products for US$1.25 billion.

Overall, there are around 1,500 pork farmers in Australia which are focused on the fresh pork market. This faces less competition from imports than frozen meat because of biosecurity barriers on the importation of fresh pork from the United States and other countries. Post has actively sought a review of these barriers.

The competitiveness of the Australian pork industry is affected by the cost of feed grain which has been significantly lower over 2016 than in recent years. The feed component in use currently consists mainly of wheat, barley and sorghum which account for 60 percent of the total cost of producing pork in Australia. The improvement in seasonal conditions across Australia from 2016 is expected to increase profitability within the industry.

Consumption

Australians consume around 25 kilograms of pork per person annually, made up of ten kilograms of fresh pork and 15 kilograms of processed ham products such as bacon and small goods, which are typically frozen. Pork products account for around ten percent of total fresh meat retail consumption. Fresh pork sold in Australia is domestically produced while around two thirds of processed pork products (ham, bacon and small goods products) are made from frozen boneless pork imported from Denmark, Canada and the United States.

Consumption of pork has benefitted from higher beef prices in recent years. The domestic pork industry has heavily promoted pork consumption through marketing campaigns such as 'bacon week'and the 'get some pork on your fork'. Consumption generally peaks during Christmas but is stable over the rest of the year.

Trade

Post expects exports of pork products in 2017 to be stable at 40,000 MT. Australia exports pork to a range of countries including Singapore, Japan and New Zealand. Around half of these exports are made on an intra-company basis; from subsidiary to parent company. The largest Australian pig farm exports around one third of its production, mainly to Singapore and Japan. Pork imports into Australia in 2017 are forecast to be stable at 240,000 MT, the same as the official forecast.

The Australian market is not currently open to direct imports of fresh, chilled or bone-in pork products on biosecurity grounds. Over 70 percent of ham, bacon and other processed pork products consumed in Australia are made from imported frozen pork which is heat-treated in government accredited facilities and used to make ham and bacon products. Post has actively sought a review of Australian biosecurity barriers on pork which currently prevent the importation of U.S. fresh, chilled and bone-in pork products.

Production, Supply and Distribution Statistics:

Animal Numbers, Cattle

2015

2016

2017

Market Beginning Year

Jan 2015

Jan 2016

Jan 2017

USDA

Official

New

Post

USDA

Official

New

Post

USDA

Official

New

Post

Total Beginning

2271

2271

2164

2164

0

2314

Sow Beginning

255

255

265

265

0

270

Production (Pig

4850

4850

5250

5250

0

5250

Total Imports

0

0

0

0

0

0

Total Supply

7121

7121

7414

7414

0

7564

Total Exports

0

0

0

0

0

0

Sow Slaughter

0

0

0

0

0

0

Other Slaughter

4957

4957

5100

5100

0

5100

Total Slaughter

4957

4957

5100

5100

0

5100

Loss

0

0

0

0

0

0

Ending

2164

2164

2314

2314

0

2464

Total Distribution

7121

7121

7414

7414

0

7564

Meat, Swine

2015

2016

2017

Market Beginning Year

USDA

Official

New

Post

USDA

Official

New

Post

USDA

Official

New

Post

Slaughter

4957

4957

5100

5100

0

5100

Beginning Stocks

25

25

21

21

0

26

Production

374

374

385

385

0

385

Total Imports

220

220

240

240

0

240

Total Supply

619

619

646

646

0

651

Total Exports

36

36

40

40

0

40

Human Dom.

562

562

580

580

0

590

Other Use, Losses

0

0

0

0

0

0

Total Dom.

562

562

580

580

0

590

Ending Stocks

21

21

26

26

0

21

Total Distribution

619

619

646

646

0

651