March 7, 2006

 

Australia cattle farmers faces the end of high profit levels

 

 

The Australian Bureau of Agricultural and Resource Economics (ABARE) is forecasting falling prices for Australian beef this year due to a projected 10 percent increase in Australian beef production.

 

ABARE notes that Australian beef exports to Japan, Korea and the US are set to come under increasing competition in coming years.

 

January saw greater sales as the re-banning of US beef caused swifter clearing of Australian products into Japan because importers moved to ensure adequate supplies. Imports of Australian beef for the month totalled 29,585 tonnes - an increase of 17 percent on-year, with imports of frozen beef up 37 percent.

 

However, the beef trade between the US and Japan is expected to resume in mid 2006 when Australian beef exports are expected to decline 12 percent from 419,000 tonnes in 2004-05, to 367,000 tonnes in 2006-07.

 

ABARE said it would take a number of years before the US regains the leading position it held in 2003, as Australia will be trying its best to retain its market share.

 

Australia's beef exports to Korea are also projected to drop 14 percent from 95,000 tonnes in 2005-06, to 81,000 tonnes in 2007-08 - largely the result of the return of US beef. Exports, however, are forecast to recover by 2010 as lower beef prices improve Australia's competitiveness and economic growth result in higher beef consumption.

 

However, prospects of exports to the US look bright as ABARE forecasts a 20 percent rise in exports there from 315,000 tonnes in 2005-06 to 395,000 tonnes by 2010-11.

 

Lower beef prices in the US would support consumption, but competition will be fierce as beef producers from Canada, Uruguay and the US itself will be vying for the same market.

 

Profits for Australian producers will fall from the high levels in 2005-06, as producers rebuild herds and invest in land and equipment.

 

While cash incomes for beef producers with over 300 cattle are forecast to fall as much as 38 percent in 2005-06, returns on investment is expected to increase. Land values, especially, have been increasing since 2001, rising 60 percent in the past six years and is expected to rise another 10 percent next year. The strongest growth was in pastoral land.