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Rabobank industry report on Australia’s major boxed beef export markets

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article image Rabobank senior animal proteins analyst Sarah Sivyer
A new industry report by agribusiness banking specialist, Rabobank on Australia’s major boxed beef exports examines the changing dynamics in traditional key export markets that are presenting both hurdles and opportunities for Australia’s exporters.

According to the report, ‘Australia’s major boxed beef export markets – the ‘steaks’ are changing’, boxed beef exporters face challenges such as the strong Australian dollar, which, combined with an aggressive US marketing campaign into Japan is seeing the US product displace Australian beef in its key market. In addition, Korea’s surplus of domestically-produced ‘Hanwoo’ beef has reduced imports from all countries.

However, the report’s author Rabobank senior animal proteins analyst Sarah Sivyer also says that tighter supply and rising beef prices in the US as a result of its worst drought in 50 years have increased input costs, creating short and medium term opportunities for Australian producers.

Looking forward, Ms Sivyer says the issue of increased domestic inventory in Korea is cyclical and should begin to subside in 2013 whilst exports to Japan will remain strongly correlated with currency movements.

The battle for Japan

Australian beef exports have been impacted by the rising share of US beef exports in the increasingly price-sensitive Japanese market, according to Rabobank’s recently-released beef industry report.

Ms Sivyer says Australian beef exports to this key market have fallen 7.5% over the past 12 months and 13% from the 5-year average, while Japanese beef imports from the US have jumped 5% in the past year. She attributes the shift to reduced competitiveness due to a strong Australian dollar, aggressive marketing by the US and price-sensitive consumers in the Japanese markets.

However, the US in 2013 will be faced with a production decrease of 3-9% depending on the drought. This tight supply, combined with increased local feed costs will lead to increased prices, which will see limited availability of US product for export.

Korean competition

The Rabobank boxed beef report shows Australian exports to Korea are down 20%, but are likely to see some recovery in late 2013.

Over the past 10 years, the domestic beef herd in Korea has increased in size by 72% from two million to 3.5 million heads. But the oversupply combined with the Korean government’s plan to reduce this herd size through financial incentives will lead to an expected slowdown in calf production in 2013. The reduced Korean production will in turn see some reinvigoration in the import market in late 2013.

United States retracts

Whilst Korea and Japan are facing slower prospects in the short term, the Rabobank boxed beef report suggests the US market has been Australia’s ‘shining light’ with Australian exports up 38% year-to-date, mostly a result of increased demand for manufacturing beef driven by a number of factors including the lean fine textured beef (LFTB) issue.

Ms Sivyer explained that the US, in March 2012 was faced with the removal of the equivalent of 2% of their supply chain as the LFTB news broke with Australia quickly moving in and taking advantage of the increased demand.

Though manufacturing beef exports to the US are up 57% this year relative to 2011, when compared to the last 3-year average, they are only up 13%.

US drought presents opportunities

There has been a great deal of initial speculation that the US drought would lead to significant herd liquidation as producers ran out of pasture, resulting in an acceleration of the already declining herd population. While total cow slaughter may be sitting above 5-year averages, this is being driven by dairy cow slaughter rather than beef cow slaughter.

Ms Sivyer says other indicators of tight beef supply in the US include feedlot placements dropping to their lowest levels since the mid-1990s reinforcing the reduced production levels, again creating an opportunity for Australia to meet this US demand.

2013 beef outlook

Looking forward, the Rabobank report suggests that recent price spikes in feed grain in the US are expected to be sustained through to at least the first half of 2013 and, combined with reduced US beef production, will continue to lead to higher domestic beef prices for the US.

The onset of rains will see producers retain their heifers, bringing down production by about 9%. However, if the drought continues, production in the US is likely to be down closer to 3%, which again provides opportunities for Australia in competing export markets such as Korea and Japan with almost all of the US herd grain-fed, compared with 34% of the Australian herd.

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