Beef & veal: March quarter 2022

The gross value of production for beef and veal is forecast to increase 8% to a record $15.7 billion in 2021–22 due to record cattle prices (Figure 1.1). High rainfall across much of eastern Australia has led to greater pasture availability and widespread restocking. Graziers, eager to capitalise on pasture availability and facing a low national cattle herd, have broken cattle price records buying scarce cattle. High world beef prices have given graziers confidence they can pay high prices now and profit from future sales. The difference between the domestic cattle and world beef prices can be referred to as a confidence premium. Such a strong confidence premium has made Australian cattle amongst the most expensive in the world.

Rebuilding momentum is likely to slow into 2022–23, resulting in higher production, falling prices, and gross value increasing to $16.3 billion. Rainfall returning to average (decile 4) levels will weigh on restocking momentum and remove most or all the current confidence premium from prices. Domestic price falls will be limited by world beef prices, which are expected to remain relatively high through the outlook period. Higher food price inflation would result in higher world beef prices in a scenario of a slower global recovery from COVID-19 disruptions. If this were to occur, the gross value of beef and veal production could be higher in 2022–23. This edition of the Agricultural Commodities Report considers both faster and slower economic recovery scenarios over the outlook period to 2026–27 (see the Agricultural overview for a full explanation).

In 2026–27, gross value will reach $19.9 billion due to strong world prices and increased beef production. World beef prices and Australian beef production could be slightly lower in the slower recovery scenario, resulting in a gross value of $19.2 billion. The most significant risk to these projections is climate variability, which can prompt graziers to increase or decrease their herd size, impacting future prices and production.

s ABARES estimate. f ABARES forecast. z ABARES projection.
Sources: ABARES; ABS

Exports are forecast to increase 11% to $9.1 billion in 2021–22. Exports are expected to remain at $9.1 billion in 2022–23 as production increases balance price falls. Through the outlook period, increasing beef production will result in greater export volumes, with falling domestic cattle prices expected to make Australian beef more competitive against other beef exporters. World prices are also expected to remain relatively strong through the outlook period. In 2026–27, exports will range from $10.2 billion under the faster recovery scenario to $10.3 billion under the slower growth scenario, with the difference largely being driven by global meat prices.

Australian cattle prices are forecast to fall to 711 c/kg in 2022–23 (Figure 1.2). Average (decile 4) rainfall will slow pasture growth, herd rebuilding and demand for younger cattle, compared to that seen in 2021–22. This will erode the ‘confidence premium’ keeping Australian prices high relative to competitors. Domestic price falls will be limited by world prices for beef, which are expected to remain relatively high through 2022–23. Slightly higher than expected world meat price inflation would result in higher average saleyard prices for Australian cattle, with prices only falling to 725 c/kg in the slower recovery scenario.

Under the faster recovery scenario domestic prices will fall again in 2023–24, as graziers consider reducing herd sizes due to the dry conditions (decile 2 rainfall). They will follow a similar but delayed pathway under the slower growth scenario, which has the driest year in 2024–25. Prices are expected to recover towards the end of both scenarios as the world returns to more stable economic conditions and demand for beef increases. Prices will also be supported by more favourable climatic conditions which will allow graziers to maintain their herd sizes.

f ABARES forecast. z ABARES projection.
Sources: ABARES; Meat & Livestock Australia

Australia’s beef and veal production is forecast to fall by 3% to almost 1.9 million tonnes in 2021–22 (Figure 1.3). COVID–19 related disruptions, ongoing labour shortages, high domestic cattle prices and lower cattle availability have acted as a ceiling on production.

Slaughter volumes have been low over the last 12 months, suggesting that cattle that could have been slaughtered are remaining on farm for longer and increasing their weights. It should be noted that despite the drought breaking rains in parts of Australia and subsequent cattle price spike in early 2020, female slaughter only dropped below 47% (which traditionally signifies a herd rebuild) nationally in the March quarter of 2021. The most recent data from the December quarter of 2021 places national female slaughter at 43%, the lowest rate since the December quarter of 2012.

Production is forecast to increase to 2.1 million tonnes in 2022–23 due to greater cattle availability, cheaper cattle, and additional processing labour. A year of national herd rebuilding will make more cattle available for markets. COVID–19 related labour shortages for the meat supply chain are likely to somewhat ease as more stable economic conditions return, borders reopen, and government policies take effect, but they may still limit some processors.

Herd growth will slow with less favourable climatic conditions (Figure 1.4). In the faster recovery scenario, turn off will accelerate in 2023–24 with low (decile 2) national rainfall causing farmers to destock. This will result in higher numbers of lighter cattle being sent for slaughter.

Slightly more favourable climatic conditions will see marginally higher production in the slower growth scenario. This is because processors will have access to heavier cattle, despite lower turn off. Graziers will be able rebuild herds for longer, with a larger base herd in the following years. The scenarios differ most in 2025–26, with dry periods at different points resulting in different numbers of cattle available.

COVID–19 related processing disruptions are expected to continue with lower frequency and smaller impacts. Processing labour is assumed to return to pre–pandemic levels through the outlook period as borders reopen, government policies take effect and supply chain disruptions become resolved. More information on agricultural labour is included in the Agricultural overview.

f ABARES forecast. z ABARES projection.
Source: ABARES; ABS

f ABARES forecast. z ABARES projection.
Source: ABARES; ABS

Exports are forecast to increase 6% to over 1 million tonnes in 2022–23. Higher exports will be enabled by greater domestic production, which is expected to occur even in a slower recovery scenario. Similarly, exports are forecast reach around 1.2 million tonnes in 2026–27 under both scenarios. Increasing beef production will result in greater export volumes, with falling cattle prices and lower exchange rates expected to make Australian beef more competitive against other beef exporters like the US and Brazil. They will also make it more profitable to export Australian beef to the US.

Tariffs will continue to fall under a range of free trade agreements including those with Korea, China, Indonesia, and the Trans–Pacific Partnership. However, tariffs will also fall for competitors (notably the US to Japan and Korea). The Australia–United Kingdom Free Trade Agreement is expected to increase beef exports to the UK, and beef exports to the US will become virtually tariff free in 2023. Boxed beef exports to South-East Asian markets are likely to increase with strengthening economic growth and rising incomes, although they will do so slightly quicker in the faster recovery scenario. Combined with Australia’s existing market access to a wide range of countries, these options should help buffer exports from bilateral trade or market access issues should they arise.

Global supply chain disruptions are still causing issues for many beef exporters globally, including those in Australia. There continue to be reports of refrigerated containers costing more and taking longer to acquire, impacting exporter margins. These will be resolved quicker in the faster recovery scenario than the slower recovery scenario. More detail on global supply chain disruptions can be found in the Macroeconomic overview.

Live exports are forecast to fall 16% to 649,000 head in 2021–22. Strong domestic prices and limited availability have made cattle too expensive for some live cattle importers. Additionally, pandemic–related economic slowdowns in key South-East Asian markets reduced incomes and meant less consumers were buying beef from Australian live cattle. A weak start to the financial year has been somewhat offset by higher exports in December and January, as live cattle importers secure cattle in preparation for the Ramadan and Eid periods. Despite this spike, high prices and limited cattle availability are expected to continue keeping live export volumes low for 2021–22.

Live exports will increase through the outlook period as more cattle become available, cattle become more affordable, and consumer incomes increase. Consumer incomes and demand for beef will rise quicker in the faster recovery scenario. The lower exchange rates in the slower recover scenario may also make Australian cattle more affordable to live cattle importers in South–East Asia.

There are likely to be further shipments of live cattle from Brazil to Vietnam, following the first shipment in September 2021. Falling cattle prices will narrow the price difference between Australian and Brazilian cattle, however shipping costs and availability are likely to play an equally important role in the competitiveness of the two countries’ exports to Vietnam through the outlook period.

US beef production is forecast to fall slightly from 2021 to 2023 as the contraction phase of their cattle cycle continues. The US has maintained its exports to Japan and South Korea despite its increased export footprint into China. This has also occurred in the face of logistical issues, strong US beef prices and pandemic impacts on demand.

Frozen beef supplies are forecast to slightly increase through the outlook period. Brazilian beef exports are expected to recover following the recommencement of exports to China. Brazilian market access was suspended in September 2021 due to two cases of atypical bovine spongiform encephalopathy (BSE). Brazilian beef production has slowed with less domestic and export demand, but production for export is likely to increase in 2022–23 and continue to do so through the outlook period.

Indian buffalo meat exports are expected to slowly increase through the outlook period. This is more likely to affect markets where Indian buffalo meat competes with beef from Australian live cattle such as Indonesia and Vietnam.

World demand for beef is expected to rise over the outlook period, with forecasts for positive but slowing economic growth across major export markets. Developing countries are expected to continue the upwards trend of beef consumption due to increased wage growth and urbanisation, but the magnitude of demand recovery will be dependent on which scenario eventuates. Consumer incomes will take longer to rise (particularly in developing countries) in the slower recovery scenario. This would mean that beef exports to Australia’s higher value export markets would likely be minimally impacted, but exports to lower value markets could be lower (as could live cattle exports).

As the US herd contracts, more cows have been slaughtered, creating greater domestic supplies of processing grade beef. This will slightly reduce demand for imported processing beef and is likely to continue through 2022 and into 2023. However, high meat price inflation in the US has provided opportunities for all its beef import partners. Meat price inflation is expected to ease through the outlook period, although the slower recovery scenario is expected to see inflation higher for longer, and a lower exchange rate. Both factors will support Australian exports to the US. US herd rebuilding from 2024 will see cows remain on farm for longer and increase demand for frozen beef.

North Asian markets are expected to have strong demand through the outlook period. China’s beef demand continues to outstrip their domestic production, leading to high volumes of beef imports in 2021. Beef demand increased in 2021 despite the significant increase in Chinese pork production. Beef demand in China is being driven by increasing incomes and increasing urbanisation. Together, these factors suggest China’s demand for beef will continue to be high. Japan and South Korea are also expected maintain relatively strong demand for beef during the outlook period.

The investment of recent profits will shape the industry beyond the outlook period

Many producers have benefited from the profits of high livestock prices and increasing equity (from rising land prices and low interest rates). Some of these profits will be invested in farm upkeep and repairs, and some will go off farm, but where the rest of the profits go could change how the cattle industry approaches the next price cycle.

If profits are invested in increasing production capacity, farm businesses will be able to create greater efficiencies and collect more returns from greater production. If, on the other hand, profits are invested in measures that allow the supply chain to be more responsive to consumer demands and increase productivity, this could see farm businesses produce new products for different markets. This could include investment in genetics, certification schemes, or specific machinery and infrastructure. This option will help producers chase constantly evolving premium markets and may have the greatest impact on the value of the industry beyond the outlook period.

Low–cost producers could find gains by moving into Australia’s frozen markets

Low–cost producers have filled gaps left by the fall in Australian beef exports in recent years. However, when Australia moves back into such markets, like China and the US, these additional players will still be present with beef that is potentially still cheaper than Australian products. If quality and reputation are what keeps consumers buying more expensive Australian beef, then producers must ensure their quality profiles are higher than those of other exporters through and beyond the outlook period. If producers were to aim to sell on price alone, it would be difficult to compete with emerging low–cost beef producers as they find further production efficiencies.