May 19, 2023
Australia's beef industry potentially getting back to "more normal" market, according to Rabobank
Australia's beef sector is set for a return to "more normal" market conditions in the season ahead after a recent extraordinary period marked by record prices levels and volatility, according to Rabobank's Australian Beef Seasonal Outlook 2023.
But while prices are projected to track in a narrower range – at close to current levels – through the year, this is still "historically high' and expectations are that beef producer margins will remains strong, the agribusiness banking specialist said.
And the lower prices and resulting market stability will have "an upside", according to report author and Rabobank senior animal protein analyst, Angus Gidley-Baird, with cheaper cattle improving Australia's competitive position in export markets and less price volatility allowing supply chains to rebalance.
"While high cattle prices in recent times have been great for producers selling cattle, this legacy remains and we are now working our way through some very expensive cattle in much softer consumer markets," he said. "A more stable price range for 2023 will allow the supply chain to rebalance, once these expensive cattle are cleared.
"Cattle prices have returned to more average levels, making Australian beef competitive again and creating a more sustainable market for everyone in the supply chain."
This price stability also provides an ideal opportunity for cattle producers to plan for the future.
"This greater stability, along with the expectation that farm profits will still be strong, also provides an ideal time to plan and prepare for the future," Gidley-Baird said. "And with a number of wetter seasons behind us, there is increased likelihood of a dry season ahead, so now is the best time to prepare for future, less favourable years."
Rabobank forecast prices to remain at levels experienced in April through the remainder of the season as cattle supplies build and producer demand declines.
"We are projecting prices will be more normal in 2023, rather than continuing the dramatic fluctuations seen over the past three years," Gidley-Baird said. "The record cattle prices of early 2022 could not last forever. Now, after a significant contraction, we believe the current prices are more in balance with market fundamentals and we expect cattle prices to hover in a relatively narrow band around current levels for 2023."
While cattle prices are forecast to remain at lower levels in 2023 – and costs are projected to stay steady – Australian beef producer margins will likely remain strong in 2023 and into 2024, the report said.
Cattle slaughter and beef production are both expected to rise in 2023, the Rabobank Outlook further stated.
Gidley-Baird said "after the lowest cattle slaughter in 37 years," 2023 would see a strong lift in slaughter volumes, as cattle numbers grow with progeny from successive years of herd rebuilding starting to flow on to the market.
The bank expects slaughter numbers will rise by 16% in 2023 (to just under seven million head), with a further rise in 2024. However, production volumes are only forecast to rise by 7% (to just over two million tonnes), reflecting a greater presence of grass-fed cattle in the system and lighter slaughter weights. This would see production volumes still 9% below the 10-year average, Gidley-Baird said.
The numbers of cattle on feed are expected to rise slowly, but stronger demand for feeder cattle is not expected until the second half of 2023.
Australia's cattle breeding herd is "almost back to normal", the report stated.
"We believe that most operators – with the exception of some in Queensland and northern Australia – now have close-to-normal breeding numbers," Gidley-Baird said. "The past couple of years of high cattle prices and favourable seasonal conditions have encouraged producers to trade more cattle than usual, rather than build breeding stock.
"Now, with lower cattle prices, drier seasonal conditions and the recovery of breeding numbers, we expect producers will revert to previous practices and reduce the level of trading."
The report forecast Australian per capita consumption of beef to fall in 2023 – by 1.6% – after increasing in 2022 to an average of 23.8 kilogrammes per person per year, despite the high retail prices for beef over the past two years.
Adjusting for population growth, this would see domestic consumption this year increase by 1% in 2023, the report said.
Beef exports, however, are expected to rise by 10%, driven by the projected production growth.
Gidley-Baird said softening consumer demand for beef in Japan and South Korea in 2023 "leads us to expect little growth in those markets."
But, the United States, which has declining beef production and a reasonably strong consumer market, provides "possibly the more likely opportunities for export growth."
Competition from other proteins would, however, be strong, he said.
China also provides export growth opportunities, following the relaxation of COVID restrictions which should support a recovery in beef demand in the foodservice channel.
"Although this may be offset by the weaker Chinese economy and also competition from rising Brazilian volumes," Gidley-Baird said.
For live cattle exports, the report said the number of cattle available will lift in 2023, following an increase in the breeding inventory.
"Numbers are projected to lift 14% to just over 700,000 head after dropping to the lowest level in 17 years in 2022," Gidley-Baird said.
Indonesia is set to remain the main destination for live exports, with volumes to Vietnam having "dropped dramatically" (by 80%) since 2020 and not much recovery expected in that market.
Global beef markets are slowly building momentum, the report added.
"Overall, challenging economic conditions and slower consumer demand will be countered by shrinking US beef supplies and recovering Chinese foodservice," Gidley-Baird said.
Rabobank expects global beef production to remain relatively static in 2023.
Growth in Australia and Brazil will be offset by a contraction in the US, the report said.
"Higher US beef prices driven by a contraction in US production are expected to support global beef prices, although the real impact is not expected until later in the year, more likely 2024 and 2025," Gidley-Baird said. "This should generate much more favourable trading conditions for Australian suppliers."
- Beef Central