AUSTRALIA’S beef and veal exports for calendar year 2016 slumped by almost 21 percent, but still managed to eclipse the one million tonne mark for only the fourth time in history.

After a late December surge, total exports last year reached 1.018 million tonnes, a decline of 267,000t or 20.7pc on the previous year, which went within a whisker of the all-time record set in 2014.

For the record, Australia’s 2014 record export volume tally of just over 1.287mt was just 2000t above the 2015 result.

Last year’s export performance perhaps better illustrates just how high exports got during the drought-fuelled 2014-15 years, rather than the extent of the decline experienced last year.

Trade to most major export destinations followed the broader downwards trend, however there were a few outliers, such as Indonesia.

Statistics released last week by the Department of Agriculture showed big corrections in trade into pivotal Australian beef markets like the United States and Japan.

As Beef Central has described frequently over the past year, 2016 produced dramatic declines in beef slaughter as the national herd sank to 20 year lows, following two years of intense herd liquidation caused by drought.

What has set the most recent drought and high turnoff episode apart from earlier examples, however, was the sheer resilience of cattle and meat prices. In the 1975-78 Beef Slump era, when cattle turnoff went close to that seen in 2014-15, prices collapsed under supply pressure.

The difference today is market diversity, and continued strong global demand for beef. In 1978, Australia was heavily reliant on just two key export markets – the US, and to a much lesser extent, Japan – for its export beef trade. In contrast in 2016, Australia’s three biggest beef export customers – the US, Japan and Korea – still took 686,000t of beef and veal (down 21pc from 868,000t the year before), but on top of that there were another eight markets across the world taking between 10,000-100,000t of beef for the year.

Dollar bears some influence

After several years where the Australian currency was uncomfortably high in US$ terms, impacting on export competitiveness, there was some relief evident in exchange rates last year. The A$ fluctuated between US69c and US79c through the 12-months just completed, but equally importantly, lost some of the day-to-day volatility that made trading conditions onerous during 2014-15. Across the full 2016 year, the A$ averaged US77.8c.

So where did the 2016 year’s export shipments go? Here’s a brief market-by-market summary:

US trade collapses

In one of the biggest one-year turnarounds in the history of Australia’s beef exports, beef and veal trade into the United States last year collapsed from a record 415,951 tonnes in 2015 to just 242,012t last year – a deficit of 41 percent, or almost 170,000t.

The enormous volumes seen in 2015 were fuelled equally by record cow-kill in Australia (aligned well with the dominant frozen grinding beef demand in the US) and a lingering deficit in the US’s own beef production, following its own earlier drought event.

Last year, however, cow kill in Australia declined dramatically as post-drought herd rebuilding started to take effect, and US beef production shifted into overdrive. Beef production increased significantly in the US during 2016. Reflecting this, imported 90CL cow beef prices for the month of November were back 3pc from year-earlier levels and 21pc lower from the peak seen in August 2015, at A573c/kg.

The collapse in trade into the US last year saw it relegated from its customary position as Australia’s largest volume export market, to second position, after Japan. Meanwhile, the presence of US beef globally has increased, with US exports growing 9pc for the year-to-September, to 578,000t, with a particular focus on Japan and Korea where US exports lifted 15pc and 31pc year-on-year, respectively.

Japanese trade steady, Korea rises

Australian beef exports to Japan eased slightly last year, reaching 264,324 tonnes, about 19,000t or 6pc below the previous year. Volumes for the past three years remain well short of the previous five-year cycle, when Australia’s trade to Japan averaged more than 320,000t.

As described above. mounting export competitive pressure from the US was a factor in last year’s trade performance, with US shortribs and other in-demand single cuts continuing to flow into the Japanese market in heavier volumes, despite US currency movements. Lower production volumes in Australia also contributed, with many export abattoirs servicing the Japanese market operating on restricted kill days through much of the year as a result of cattle supply challenges.

The above two results for annual exports to Japan and the US produced a somewhat unusual milestone: it’s the first time in recent memory that Australia has not eclipsed 300,000t in volume to at least one of its two largest beef export customers.

Trade with South Korea last year went against the broader trend, in the wake of further tariff advantages provided through the KAFTA free trade agreement, and shortages in Korean domestic beef production. Australian beef exports last year reached a record high of almost 180,000t tonnes, 13,000t or 8pc higher than the year before.

The expansion did not come at the cost of other competitors, however. The US recently surpassed Australia as the largest supplier of imported beef to Korea, for the first time since the BSE crisis struck in 2003. During November, the Korea Customs Service cleared 13,900t of US beef for the month, compared to 10,300t from Australia.

Total Korean beef imports from all suppliers for the 2016 calendar year to November amount to almost 347,000t – the largest seen since 2000. Australia’s share at that point was 162,000t, or 46.7pc of the total.

China market falters

After two years of explosive growth in trade, beef exports to China last calendar year exhibited a significant check in volume.

Total trade for the year reached just over 94,000t, a sharp 36pc decline from trade in 2015, when volume reached 148,222t. The record was set a year earlier in 2014, when Australian shipments topped 154,000t.

China has been something of a roller-coaster since it exploded onto the global beef market during 2012-13 with spectacular growth. The awakening of the ‘sleeping giant’ was the beef export story of the year in 2013-14, when volumes shot up 370pc in volume on trade compared with 2012.

Last year’s decline is due to the arrival of Brazil as a serious export competitor in China, rapidly gaining ascendency over Australia in volume performance, based on competitive pricing and availability.

Almost 14pc of Australia’s beef trade into China in 2016 was made up of either carcase or bone-in beef, reflecting the shortage of domestic cattle to process in under-utilised Chinese boning rooms.

There was a little improvement seen in chilled exports to China following earlier suspensions and restrictions, with 6526t of chilled beef and veal consigned from 11 authorised Australian plants, representing about 7pc of Australia’s total beef trade.

Elsewhere, politics and trade access – some positive, some negative – exerted influences on our export performance in emerging markets.

Indonesia shows promising signs

Arguably one of Australia’s strongest growth markets in 2016, Indonesia last year took 61,676t of Australian beef, as earlier trade restrictions imposed by the Indonesian Government as part of its drive for ‘self sufficiency’ in beef started to ease. A greater range of cuts and offals is now permitted for export, and 2016 trade consequently surged to 61,676t – 58pc higher than a year earlier.

Offal sales also rose sharply for the same reasons, reaching 18,155t.

EU market down, other markets mixed

Australia’s total export beef trade to the European Union last year reached 20,749t, down 11pc on the year previous. Grainfed trade continued to grow in size, compared with grassfed.

The Middle East region continued to trend downwards as a destination for Australian beef and veal in 2016. The region, dominated by trade to Saudi Arabia, took 30,722t for the year – back sharply from 53,000t the previous year and just short of 60,000t in 2014. Again, sharply priced competition from Brazil was a considerable factor in the decline in trade, coupled with Australia’s underlying supply malaise.

After showing solid growth as an emerging export market for Australian beef over the previous two years, trade with Canada fell away badly in 2016. Annual exports reached 19,317t, considerably less than half the trade written in 2015.

In other emerging markets, the Philippines took 29,430t of Australian beef last year, up about 17pc year-on-year, while Taiwan remained a steady customer at 31,384t. Malaysia eased about 15pc to 10,300t.

Russia and the former CIS states all but disappeared last year as a significant export destination for Australian beef, accounting for just 105t in 2016. Three years earlier the trade accounted for around 30,000t, and took as much as 60,000t annually in 2010 and 2011.

Also largely gone as a specialised export customer for Australian beef is Central and South America where volumes of mostly picanha/rump caps and other specialised in-demand cuts all but disappeared, accounting for just 2265t. Contrast that with about 15,000t back on 2012, when trade was much more active.

Looking ahead, the 2017 year is likely to see Australian beef exports little improved, or even lower that 2016, as Australia recovers from one of the largest herd liquidations in history. Export processors are anticipating slaughter cattle procurement conditions to become particularly tough during the second and third quarters this year, after what some are anticipating as a ‘reasonable’ first quarter start.