Low calving rates hit AACo meat sales and profits

The annual results of one of the nation’s largest cattle producers has been hit by years of drought and floods, limiting the rebuild of its herd.

AACo, led by chief executive officer Hugh Killen, is tipping a lift in global beef prices within the next six months. Picture: Supplied

The lasting hit from drought and flooding rain has put the brakes on calving rates for northern pastoral giant, the Australian Agricultural Company, cutting back its meat sales volume by a hefty 19 per cent in the past financial year.

This, along with the three-and-a-half year lifecyle of its Wagyu-cross herd, was expected to continue the trend of reduced meat sales volume, well into the next financial year, as AACo’s herd continues to rebuild.

But, despite this, AACo’s focus on premium branded products had helped produce an 8-per-cent improvement in the average meat sales price per kilogram.

The company reported today that it had consolidated its first-half position to deliver an operating profit of $24.4 million for the financial year.

This came despite the company reporting an overall reduction in revenue of $68.6m, or 21 per cent driven by the lower volume of production.

It also delivered a positive operating cash flow of $18.4m and a statutory EBITDA profit of $99.3 million, despite the impacts of COVID-19.

The northern Australian pastoral giant now reports a net asset value of more than $1 billion.

Last May, AACo reported a $15m profit for the 12 months to March 31 2020.

Today AACo chief executive Hugh Killen said the past year would go down as one of the most challenging on record for many companies.

“And AACo is no different, so to post a positive result is commendable,” he said.

The fundamentals of the business “remain strong”, he said, and there had been progress made with AACo’s brands.

“A significant reduction in expenditure, improved price per kilo and further progress in our goal of making AACo a simpler and more efficient business helped deliver this result,” he said.

“However, reduced meat sales volume is expected to continue into FY22 after AACo experienced lower calving in 2018-2020 due to prolonged drought and the Gulf flood event, in line with the Australian cattle herd.”

As well as uncertainty due to COVID-19, Mr Killen said the Australian cattle industry was also being affected by other external forces, including reduced herd sizes as a result of historic tumultuous seasonal impacts in droughts and flood.

“Much attention has been on the Eastern Young Cattle Indicator, but the record-setting rate is largely a consequence of supply and demand, with fewer cattle for Queensland producers who are looking to restock,” he said.

“Meat and Livestock Australia has revised down cattle slaughter forecasts to their lowest level in 36 years and a fall of 11 per cent on 2020 levels.

“The national cattle herd is also coming off its lowest level in 25 years, in 2020.”

AACo was also feeling the impacts of seasonal conditions with a number of its stations recording average rainfall and its Gulf of Carpentaria properties still recovering from the flood, with limited pasture response.

“These headwinds have started to impact our meat production in FY21 due to our average F1 Wagyu life cycle length of three-and-a-half years from conception through to backgrounding, feedlots and processing,” he said.

Mr Killen said this had translated into 19 per cent lower meat volumes in the past financial year, and forecast lower sales volume were likely to continue into the next reporting period.

“Importantly though, our herd rebuild has commenced, with a 47 per cent increase in calves in FY21 compared to FY20.”

However, a highlight was progress made on the branded beef strategy, which remained fundamental to AACo and would continue to help the company navigate through the uncertain environment.

“Our strong brand portfolio and distribution partnerships have helped us connect with new customers and respond to changes in our markets in FY21 and has helped us deliver an eight per cent improvement in the average meat sales price per kilogram,” he said.

AACo reported that its ongoing focus on strategic market allocation had produced good outcomes for all markets except China, Europe and the Middle East.

Branded beef price per kilo was up 14 per cent in North America, but the proportion of product sold in China decreased in FY21.

AACo sales in Europe and the Middle East directly felt the impact of COVID-19 on food service. Looking ahead, Mr Killen said, the almost 200-year old pastoral business was focused on sustainability.

AACo was expected to release its second sustainability report in July, detailing our progress made on the carbon project which aimed to reduce the “emissions intensity of beef cattle production”.

Practical ways the company would lift its sustainability included using genomics to make better cattle selections, have its grazing area increased through better water access points; better pasture control through improved fencing infrastructure and reduced cattle handling through better yard systems.

Mr Killen said the long term beef outlook was positive globally, and AACo was seeing a rebound in its calving rates, helping it to rebuild its herd.

Meanwhile, the outlook for red meat prices globally was lifting this week, due to Argentina banning beef exports. This had produced immediate moves in global beef prices.

He added global red meat prices could move even more in the next six months.

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