January 07, 2004

 

 

Australia Cattle Feedlots Wary To Commit To Japan

 

Australian feedlot operators have spare capacity but will need plenty of commercial incentive to lift the number of cattle on feed in the wake of the discovery in the U.S. of a single case of bovine spongiform encephalopathy, or mad cow disease, an industry executive said Wednesday.

 

And even if the incentive appears, and feedlot operators agree with expected Japanese buyers to lift numbers, it could take many months for throughput to increase, said Rob Sewell, executive director of lobby the Australian Lot Feeders Association.

 

He was commenting on the eve of a visit to Australia Friday by an official delegation from Japan's Agriculture Ministry to talk to the Australian beef industry, including association representatives, about increased supplies.

 

Several countries in Asia and elsewhere, including Japan, South Korea and Taiwan, have effectively banned imports of U.S. beef after news of the BSE discovery emerged.

 

Australia competes with the U.S. to supply these major markets.

 

Australian exporters have reported increased demand from Japan in recent days, with the price of Australian cattle suitable for Japan rallying about 20%. The price of Australian beef in Japan is reported to have jumped 40% while U.S. cattle prices have plunged.

 

Australia is a major global supplier of beef, with about a quarter of the 8 million beasts slaughtered each year produced in a feedlot.

 

The association reported in October that the number of cattle in Australian feedlots on Sept. 30 totaled 609,890 beasts, down 6.6% from a year earlier. More than half of it was destined for Japan.

 

Sewell said feedlots probably have the capacity to feed another 80,000 beasts immediately.

 

But it isn't going to happen straight away, it's going to take a lead-in time," he told Dow Jones Newswires.

 

STRONG AUSTRALIAN DOLLAR SHAVES RETURNS TO EXPORTERS

 

Potential Japanese buyers will have to offer sharply increased prices for grainfed product to take account of the impact of an Australian dollar now quoted around US$0.7677, up more than US$0.20 from late 2002, he said.

 

Indeed, the strong currency is probably the industry's biggest "issue," he said.

 

Moreover, the impact of a sharp increase Aug. 1 of a Japanese tariff on imported chilled beef to 50% from 38% will also increase costs to Japanese buyers, he warned.

 

These factors, and others, including high Australian prices to buy cattle and relatively high grain prices, mean there isn't a lot going for the Japanese grainfed market at the moment, Sewell said.

 

"The domestic market is looking much better for a lot of people than it ever has because of" these factors, he said.

 

That said, the feedlot industry is a business built on margins, and if there is enough incentive, people will have the ability to and will increase cattle numbers on feed for Japan, he said.

 

Tight contracts to feedlotters offered by Japanese buyers are critical to this decision, he said.

 

Nearly all Australian feedlots have contracts covering some or all of their production, Sewell said.

 

"It's a very dangerous practice to have cattle on feed without knowing where they're going," he said.

 

A major uncertainty for the industry will be how long the Japanese ban on U.S. beef imports lasts, he said.

 

Australian feedlotters have been "burnt" a few times in recent years in the wake of various disease scares overseas, he said, citing the discovery of BSE in Japan in late 2001 and 2002.

 

As a result, Sewell doubts many local feedlotters will add huge numbers without solid long-term commitments from Japanese buyers.

 

While many cattle destined for Japan are put on feed for as little as 120 days, many are grainfed for 300 days or more. Yet without a contract, what happens if Japan lifts its import ban on U.S. beef?, he said.

 

"Once they (feedlotters) start feeding for the Japan market, there aren't many alternatives," he said, as these animals then aren't suitable for the domestic market, for instance.

 

The Australian industry can work with Japan, so long as this is done on a strictly commercial basis, he said.

 

Australian feedlotters won't disrupt existing feeding regimes unless buyers offer firm contract prices at the end of the feed period, he said.