BeefEx 2012

BeefEx: Don Mackay profile – the challenges ahead for lotfeeders

Jon Condon, 12/10/2012

Don MackayThe past four years have arguably been the toughest for the lotfeeding sector since the dark days of the 1975-78 Beef Slump, but the newly-elected president of the Australian Lot Feeders Association believes the worst may now be behind the industry.

Highly regarded Don Mackay too over the reins as ALFA president from Jim Cudmore at yesterday’s annual general meeting, and he already shows signs of starting to chart a course for further industry recovery.

While some critics might suggest Mr Mackay’s entré to the world of industry peak council politics via election to fill a vacant seat on the ALFA council less than a year ago means his elevation has been somewhat meteoric, none can argue against his breadth of industry experience or leadership qualities.

While he has been connected with the feedlot sector for more than 20 years in a less direct sense, his appointment as managing director and chief executive at Rangers Valley feedlot near Glen Innes in early 2009 brought him much closer to grainfed industry affairs.

Mr Mackay took over from Malcolm Foster as the head of Rangers Valley, one of Australia’s larger feedlots which built its reputation on premium quality long fed Angus programs.

Given the considerable time sacrifices involved, it is to his employer, Japan’s Marubeni Corp’s considerable credit that it was prepared to allow him to accept the ALFA presidency so soon after its former CEO, Malcolm Foster, filled the same chair.

Rangers Valley today is a very different operation than it was even five or six years ago, when it was arguably the world’s only dedicated 300-day longfed Angus program feedlot. With a current operating capacity of 32,000 head, and 27,500 currently on the stock inventory, Rangers today has moved with the times, with four distinctly separate feeding programs in play:

  • The existing longfed Angus, minimum 270 DOF, in which the company’s premium beef brand is built. This trade was originally all directed into Japan, but now finds its way into 20 countries worldwide, with the Japanese trade now representing less than half of that
  • A relatively new EU-accredited longfed program, aiming to tap into emerging opportunities under the EU grainfed quota
  • A special 130-head/week program for 100-day shortfed Angus, which represents the supply source for the Coles Finest premium domestic brand, processed at ACC Cannon Hill, and distributed to all Coles stores from Sydney north.
  • A longfed Wagyu program, which has grown from very small numbers four years ago when Mr Mackay joined Rangers Valley, to today representing around 7000 head on feed.

Prior to his Rangers Valley appointment, however, Mr Mackay has had strong connections with the grainfed sector, via his corporate career.

In his early senior management roles at Elders, the company made investments in Killara and later Charlton feedlots, and during his more recent ten-year term as chief executive at the Australian Agricultural Co, the roles played by Goonoo feedlot (17,500 head) and Aronui (12,000 head) were integral to the AA Co business model.   

While Mr Mackay spent two years as president of the Australian Livestock Agents Association for two years, and has chaired a range of industry committees on development of quality systems, traceability systems and other matters, he has never previous sought involvement with anything approaching industry peak council level.

So why now?

“It’s a good question,” he said, while contemplating a suitable response.

The industry has a number of very talented young people within ALFA, who were probably still a few years away from taking on roles like the presidency was part of the answer.

Adding to that, as mentioned yesterday on Beef Central, is the fact that two of ALFA’s most experienced council members – Malcolm Foster and Sandy Maconochie, both themselves former presidents – retired from the board at yesterday’s AGM.

“But having said that, I certainly do not consider this to be a custodial, caretaker role. I am genuinely interested in where the industry is heading, and feel I can make a real contribution towards that over the next three years at least, as somebody with considerable breadth of industry experience – as well as having a few grey hairs,” Mr Mackay said.

Asked whether the tide had yet turned in terms of the grainfed industry’s fortunes, he said he would like to think so.

“We are seeing a lot more well-informed people talking about the likelihood of increasing food prices, globally, in coming years. That contrasts with the recent global emphasis on trying to reduce costs of food.”

“We can’t keep doing that indefinitely, and it has been sustained primarily by the industry’s (and the Australian food sector generally) focus on innovation, being a non-subsidised industry.

“Innovation and R&D are arguably the key reason we are still in business – but they will only take us to a certain point. At the end of the day, there is a need for a higher return,” Mr Mackay said.

“I think we are seeing signs of that starting to happen. Affluence is growing in new customer countries like Indonesia, the Middle East and Russia. In existing larger markets, like the US, Japan and Korea we are hopefully staring to come out of the bottom end of the financial cycle.

“Not that long ago, the grainfed export industry was heavily reliant on the US and Japan. Suddenly we have growing opportunities in the EU, Eastern Europe, the Middle East and elsewhere. The market circumstances forced us to be more innovative about where and how we sell our product, and the feedlot sector will continue to provide the quality of product on a consistent basis that those international customers want.”

Mr Mackay said as seasonal conditions continued to vary, as they inevitably would, the grainfed industry would re-occupy some of that ‘opportunistic’, drought mitigation role that it did during long dry periods over the past 20 years.

“But what is happening more and more is that feedlots are becoming very specific, and very targeted in what they do. This comes in various forms: large processors that have large, long-term grainfed beef contracts with customers either in Australia or overseas; or other non-packer companies that have investing money in building beef brands and building long-term supply alliances.”

“So the opportunistic, or drought-tool feeding role of the industry will in future fill the vacant gap we have in our business, rather than being the main game,” he said.

“It may be that that represents several hundred thousand head capacity, that is utilised during those times when pricing or weather circumstances dictate.”

There was now very little non-committed, speculative export cattle feeding occurring in Australia, Mr Mackay said. In Rangers Valley’s case some programs for Japan were fully committed, price-wise, before cattle even entered the feedyard, and most others were three and four month forward commitments.

“These days, there are very few speculators: it is an industry for people who understand the market – either processors with capacity to fill, people with cattle already bred that need to be fed, or people with a committed market somewhere. If you have none of those, you either need to be a custom feeder for somebody who is, or as in Rangers’ case, having long-standing customers that take a big chunk of weekly production under agreements.”     

The reality of lotfeeding today was that it is driven primarily by three things: the price of incoming cattle; the price of exiting cattle; and the price of grain.

Recently, the price out the other end had been flat; grain prices had been good, but had risen over the past three or four months; and feeder cattle had  been expensive, but were getting cheaper as the effects of two exceptional seasons in a row run their course.

“But one thing about business, and agriculture is no different, is that if it’s out of balance, it eventually gets back into balance again. We are starting to see that occur now,” Mr Mackay said.

“I’m not advocating that the price of feeder cattle needs to drop dramatically, but at the end of the day if meat prices don’t rise, we will see some feeder cattle prices start to ease, particularly if conditions stay dry.”

He said while some stakeholders had predicted rising cattle prices over the next 12 months, there were are lot of elements at play in the mix at present.

“The US is obviously the big gorilla in the room: its grain production is significantly lower, and the herd is at 50-year lows. Its capacity to compete with any volume of product in our key markets of Japan and Korea has to be less. Countering that, all indications are that they will get a 30-month-of- age access provision into Japan some time early next year.”

In Korea, the US now has a 2.5pc tariff advantage over Australia, which becomes 5pc in January next year. Tariffs and market access were key area that the industry had to better manage in coming years.

Mr Mackay said ALFA, as an organisation had been well positioned by its council’s decisions earlier. He said it succeeded as an industry body because it was properly funded, directly by the people it represented, and had a strong level of membership among industry stakeholders.

“That single focus allows the association to really delivery for its members. But having said that, there are a whole lot of things coming at the industry over the next few years which represent big challenges.”

The emergence of social media and the changing expectations of beef consumers were examples.

“There is now a much greater capacity for single-interest groups with very little or no knowledge of the industry or how it operates to run their own agendas, that can potentially destroy your business,” he said.



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