Beef prices set to soar as drought trims herd

Australian beef production is expected to fall and exports to key markets shrink as the drought and bushfires constrict cattle herds.

Drought is expected to further shrink Australia’s beef herd next year. Picture: Lyndon Mechielsen

Brazil’s JBS, the world’s biggest meat processor, has warned it expects Australian beef production to fall and exports to key markets such as Japan, South Korea and the US to similarly shrink next year as the drought and bushfires constrict cattle herds.

The economic forces now rattling beef production are already putting a rocket under lamb prices with years of drought and harsh growing conditions slashing the national flock and causing heartburn for local shoppers as they baulk at prices on the supermarket shelves.

And it looks like beef is the next protein primed for a price rise and limited supply, with the Brazilian beef giant and biggest processor in Australia forecasting considerably tightening conditions into 2020.

JBS chief executive Gilberto Tomazoni told US analysts and investors at the company’s recent third quarter earnings update that the dry climate in Australia, including the drought, would have an impact on beef production, exports and prices next year, though parts of Australia were in much better shape.

“We have (had a) fantastic growing season, probably the best in the past 20 years. In some other areas, especially in Queensland and NSW, it’s very dry and has caused some fire,’’ Mr Tomazoni said.

“There’s no impact in the product in the short term, but I do expect that Australia for next year will produce less beef and export less beef.”

China will remain a strong and growing market for beef but Australia could find it difficult to sell more product into the region and elsewhere

“I expect that China will continue to grow so I think that other traditional markets for Australia, we will see less offer from Australia. That means Japan, Korea and US,’’ the JBS CEO said.

“I think that Australia performance for us will continue to be very healthy and very good just because demand is so strong. But I do expect higher price in cattle and lower production for Australia next year. And as Australia, in my base scenario, we will export less to Japan and Korea.”

The downbeat assessment of cattle production over the next year mirrors a recent report issued by Meat & Livestock Australia which has forecast that the dry conditions across key parts of Australia would fuel continued herd contraction.

The peak industry group has lowered its national herd forecast for 2020.

It recently reported that continued and widespread dry conditions through winter and into spring, female cattle slaughter remained elevated, prolonging Australia’s ongoing herd liquidation. On a 12-month rolling basis, the female percentage of adult slaughter remains at 54 per cent, the MLA Cattle Industry Projections October update said, keeping the national herd firmly locked in a contraction phase.

MLA senior market analyst Adam Cheetham said the excess turn-off of breeding stock and poor rainfall outlook has resulted in adult cattle slaughter for 2019 being revised higher to 8.4 million head, up 7 per cent on last year.

“Reflecting these higher slaughter levels in the second half of 2019, the national herd forecast for the end of June 2020 has been adjusted lower to 25.5 million head,” Mr Cheetham said.

A Rabobank meat outlook report has argued that Australian beef and sheep meat prices would remain strong in 2020 as African Swine Fever continues to grip the global animal protein sector while drought has sent sheep and cattle herds to their lowest levels in more than 20 years.

Rabobank analyst Angus Gidley-Baird said prolonged dry conditions would certainly hit beef prices as well as having an ongoing tightening on beef production in Australia.

“It is having a massive impact, and it is not just the current conditions but the fact it has been dry in many parts of Australia for 18 months and just the liquidation of cattle and turning off, not having any pasture to feed cattle, means we have eaten into our breeding ability and obviously that will impact our beef or cattle production in the coming years.’’

Mr Gidley-Baird said the challenge now would be Australian producers looking to support traditional export markets in South Korea, Japan and the US but also selling into China where demand and prices are high.