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ELECTRIC cars are taking off far quicker than anyone predicted and that has more to do with Australia’s cattle industry than you might imagine.
The possibility of ethanol markets collapsing, and of large areas of arable land being turned over to pasture, particularly in the United States, is starting to spark interesting conversations.
Agriculture investment consultant and experienced cattle industry executive David Farley believes the electric car disruption could influence cattle market outlooks far greater than anyone is currently giving it credit for.
“The threat is real and, like a drought, it’s creeping on and getting deeper every day,” he said.
“If fuel demand and consumption drops as a consequence of electric cars and the economics of ethanol programs becomes unattractive, the choice for the farmer could be to replant pasture grasses and revert to cattle breeding and grass fattening,” he said.
“In the vicinity of 25 million acres of pasture land in the US over the past two decades has been converted to the corn–soybean cropping cycle and if large amounts of this land comes back into pasture, the US herd could quickly return to 120 million head, from the current 90m.
“If this was to take effect, the impact on both Australian grass and grain fed beef exports would be substantial.”
An industry snapshot of the Australian electric vehicle market released this month by the Clean Energy Finance Corporation predicts that under a model of moderate government intervention, electric car sales would take off in just three years, reach 50 per cent of new car sales by 2030 and account for more than 90pc of Australia’s fleet by 2050.
All major auto manufacturers appear to have five and ten-year rollout plans for electric cars.
Mr Farley says other industries are also planning for the advent of electric cars.
“Global pasture seed producers are aware of the potential acreage shift in the US and are gearing up to offer dollar-per-acre profit competition back into grazing and animal production against row crops,” he said.
“Mining industries are exploring new rare earth minerals for battery production for electric cars and most major global cities are readying themselves with the installation of charging stations.
“Banks are also now financing electric cars on equal footing to internal combustion cars.”
Mr Farley says major US meat processors have, over the past two years, divested feedlot assets, freeing equity and working capital to prepare themselves for the potential shift.
He believes it’s time Australia’s beef industry “joined the conversation.”
“There has been too much looking through the magnifying glass into the past as opposed to through the binoculars into the future for the Australian cattle and beef industries,” he said.
However, US agriculture officials say they see no threat from the adoption of electric vehicles to their cattle industry in the near or intermediate term.
Deputy chief economist at the United States Department of Agriculture Warren Preston said the adoption of electric vehicles had been slow.
Rabobank’s US cattle expert Don Close agreed.
According to the International Energy Agency’s global outlook 2018, the market share of electric cars in the US was only 1.2pc in 2017.
Under IEA’s central scenario assuming current and likely effects of announced policies, electric vehicle market share is projected to reach less than 10pc of light-duty vehicles in the US by 2030.
“The future of the ethanol industry factors into the USDA’s cattle forecasts primarily through the availability and price for corn, a primary feedstuff for the grain-finishing cattle industry here,” Mr Preston said.
“Our long-term projections to 2027, released in February of this year, are for ethanol production to increase in the beginning of the projection period and then decline through the rest of the decade.
“Even with the US ethanol production decline, demand for corn to produce ethanol continues to have a strong presence in the sector, accounting for over 35pc of total US corn use throughout the projection period.
“Rather than adoption of electric vehicles as the main driver, the USDA’s 10-year projection for ethanol reflects infrastructure, geographical and other constraints on growth for higher level ethanol blends, and falling US gasoline consumption due to rising fuel efficiency, rising real costs of fossil fuels, and changing consumer lifestyles and urban transport modes.”
While cattle market analysts in Australia believe the advent of the electric car is certainly worth watching, they point out the corn industry in the US still provides a lot of product into the animal feed industry.
The general trend had been conversion from cow and calf operations to row cropping, they said.
Most thought mass market displacement of internal combustion engines was still a fair way off.
Agribusiness economist with National Australia Bank Phin Ziebell said the other consideration was that any additional livestock production would also be associated with increased feed demand.
“The bottom line is that with the world’s population increasing and Chinese soybean demand for stock feed the big driver of US and Brazilian grain markets, I think we’ll still see grain in demand for many years to come,” he said.