An expansion in global meat production (above the long-term average) and increased competition are the key messages from the recently-released Rabobank 2018 animal protein outlook.
Like in 2017, pork will play a major role in this expansion.
However expansion in beef production is set to rival pork, with an additional 1.3 million tonnes of beef expected to be produced in 2018.
Brazil and the US will be the largest production growth regions for beef with both countries estimated to produce close to an additional 500,000 tonnes each.
While domestic consumption in the US is expected to increase, and an improvement in the Brazilian economy should support a recovery in Brazilian consumption, both countries will rely more heavily on exports in 2018.
This additional beef in the global market, along with the increased production of other meats, will mean a much more competitive marketplace for Australia to sell into and place downward pressure on prices.
Despite this increasingly competitive landscape, there are some positives.
The Chinese market is expected to increase imports of beef and balance the growth in global production. The other positive is that much of the US production growth is expected to be driven by increased carcase weights.
Higher carcase weights have the potential to increase the production of fatter beef which should support ongoing demand for lean trimmings – the main export from Australia to the US.
Australia’s beef production is expected to see a slight increase from 2017, as producers gradually rebuild their herds and cattle numbers, and slaughter also increases.
This increase will bring volumes back in line with longer-term averages.
Prior to the liquidation of cattle in 2013, the average production was 2.1 million tonnes for the period 2006 to 2012.
The forecast for 2018 is just over 2.1 million tonnes.
Increased production will also be supported by heavier carcase weights with improved seasonal conditions and increased numbers of cattle on feed.
Despite falling slightly, the number of cattle on feed was still above one million head in Q3, the second highest number on record. Underlying the ongoing demand for feeder cattle is the increase in feedlot capacity.
Queensland’s capacity increased for the second quarter in a row, creating space for an additional 34,500 head since Q1.
Live exports will be a key for the northern industry in 2018. 2017 has seen live export numbers 20 per cent lower than 2016 (in the 10 months to October) with numbers to Indonesia down seven per cent.
As a result, Indonesian feedlots currently have very low stocks.
If cattle numbers do not increase there will be pressures on Indonesian beef supply for Ramadan which may prompt further government intervention.
Rabobank believes Australian cattle prices would need to drop to $3/kg ex Darwin to make feedlot margins more attractive and encourage cattle buying.
So while 2018 will face some headwinds from increased global competition, limited domestic cattle supplies should continue to support a strong Australian market.
But, keep an eye on the live cattle trade.
