01 August 2013

• Beef productivity growing at 0.9pc per year – ABARES
• July rain average
• US cattle slaughter down in 2012-13
• US cattle outlook still hinges on drought breaking

The Australian beef industry has achieved productivity growth of 0.9pc per year, primarily due to output growth of 0.6pc, and moderate reductions (0.3pc) of input use, according to a new ABARES report – Financial performance of beef cattle producing farms, 2010-11 to 2012-13.

Separating the northern and southern regions, productivity growth in the north has outpaced the south, with growth at 1pc per year, largely assisted by the average herd size increasing 1.3pc per year and stocking rates increasing 2pc per year, since 1988-89.

According to ABARES, the improvements have been the result of more sophisticated cattle management systems, the shift to a higher proportion of bos inducus cattle and the eradication of TB and brucellosis. These have combined to improve herd health, increase branding rates and reduce mortalities.

Like the north, advances in genetics and improved herd, disease and fodder management have contributed to greater productivity in the south, however, the rate of improvement has been slower, at around 0.4pc/year. Explaining the sluggish growth is the better rates already achieved, the greater prevalence of small farms with less capacity to improve, and the generally more intense systems being more exposed to climatic variability and drought.

July rain average

July saw generally average rainfall across the majority of the country, which on top of the very mild winter temperatures, helped some pasture conditions to improve, particularly across parts of the southern states.

Encouragingly, most of Victoria and SA received average to above average falls through July – a period when higher rainfall is expected, with Bordertown, SA, receiving 90mm. In contrast, a large proportion of southern WA had below average rain, continuing the unseasonably dry run for the key agricultural regions.

Most of western NSW received average falls, following a wet June, with falls at Forbes totalling 50mm. However, in the east of the state, rain was lighter, with rain at Tamworth totalling 20mm for the month.

While average falls were recorded across the majority of Queensland and the NT during July, only small totals are required to make the average, with the 5mm recorded at Longreach average for the month.

Overall, the average falls were enough to continue the improvements in cattle markets, with the EYCI increasing 6¢ through the month, to close July at 325.5¢/kg, while the ESTLI gained 9¢, to finish the month on 500¢/kg.

US cattle slaughter down in 2012-13

Total cattle slaughter was 2pc lower year-on-year in the US for the 2012-13 fiscal year, at 32.19 million head, according to US Department of Agriculture stats. On average, however, cattle were slightly heavier, with beef production down just 1pc, at 11.7 million tonnes.

The decline in cattle slaughter was recorded across all categories, except dairy cows (3.14m head), which were turned off at a higher rate in response to high feed costs. Steers and heifers, which are mostly fed cattle, were down 2pc (to 16.05m head) and 4pc (to 9.07m head), respectively, also in large part due to high feed costs discouraging feedlots from increasing their stocks.

Beef cow slaughter (3.38m head) was down 8pc, mainly due to the decline in the overall beef cow herd. This drop in beef cow slaughter occurred through July to March, with the April to June quarter up 11pc, as the drought continued into the US summer.

US cattle outlook still hinges on drought breaking

In a similar vein to much of the last five years, US cattle producers are in a position where there are widespread intentions to grow herd sizes, but the severe ongoing drought in large cow-calf producing areas remains the limiting factor, according to recent Long Term Outlook released by CattleFax.

There was a very high run of beef cow slaughter through the first half of 2013, resulting in expectations of a smaller beef cow herd to open 2014, perhaps down by as much as 300,000 head on 2013 opening numbers, to around 29m head. There could be a recovery through 2014, however, resulting in the first increase in the beef cow inventory since 2006. Cow slaughter is forecast to slow considerably in the fourth quarter of 2013, but this will depend on better pastures, more hay and cheaper corn.

High feed costs over the past two years have resulted in negative margins for feedlots, although the cow-calf sector has maintained reasonably profitability. There are expectations for a particularly good corn crop this year, which should translate to a drop in feed prices across most categories, and be of significant benefit for feedlots. Overall fed cattle slaughter in 2013 is forecast to be down 400,000 head this year, and a further 500,000 head lower in 2014, bringing the total to 29.4m head.

This drop could be reduced slightly if grain prices fall enough to encourage more calves onto feed.

Total beef production in the US, as a result of the forecast decline in slaughter, is expected to be much lower through the end of 2013 and 2014 (potentially the first consecutive four years to have production declines since 1913). In addition, CattleFax suggests US exports will outweigh imports in 2013 and 2014, further limiting the available supplies for domestic consumers.

The growth of demand for beef in China is noted as a key reason for supplies starting to tighten around the rest of the world, with beef imports in China and Hong Kong (combined) expected to have increased by 400,000t in 2013 compared with 2011, despite global production being 63,510t lower.

Cattle price forecasts for the remainder of 2013 are very bullish across fed cattle, feeders and calves, underpinned by the expected tighter supply, although corn price movements will certainly be influential as well.