Australian boxed beef exports are struggling in traditional key markets, but have been boosted by strong demand from the US, according to a new report from agribusiness banking specialist Rabobank.
The report ‘Australia’s major boxed beef export markets – the steaks are changing’, revealed that a high Australian dollar has driven a move away from Australian imports in the increasingly price-sensitive Japanese market. This has been compounded by a rise in domestic production, which was up 5% year-to-date compared to 2011 figures as a result of Japanese producers slaughtering product that was held back after last year’s earthquake.
Australian product has also been displaced by “aggressive” marketing of US beef, which recently regained access to the Japanese market, after being banned over BSE fears in 2004, and which has benefited from a weaker US dollar, the report said. Over the past 12 months, Australian exports to Japan have fallen by 7.5%, while US exports to the market have increased by 5%.
However, the report pointed out that the drought in the US will result in tight supplies of beef next year, which will constrain its push back into the Japanese market.
“In 2013, the US will be faced with a production decrease between 3% and 9%, depending on whether the drought continues. This tight supply, combined with increased local feed costs will lead to increased prices, which will limit the availability of US product for export,” explained Rabobank senior animal proteins analyst Sarah Sivyer.
Exports to South Korea, another key market for Australian boxed beef, have fallen by 20% over the past year, as a result of increasing domestic production. The Korean beef herd has grown by 72% to 3.5 million head over the past 10 years, leading to oversupply and low domestic prices.
However, the report stated there was likely to be some recovery of Australian boxed beef exports to Korea in late 2013, as a result of government incentives to increase the slaughter of ‘lower-performing’ cows and reduce the herd size.
“While production in Korea will increase in 2012, as a result of this increased slaughter, the government incentives, combined with low cattle prices will lead to an expected slowdown in calf production moving forward into 2013,” said Sivyer. “When Korean production starts to subside, we will then see some reinvigoration in the import market, which we expect to occur in late 2013.”
In the longer-term future, the report predicted that the US-Korean Free Trade Agreement, which will see tariffs on US muscle meats removed over a 15-year period, could impact on Australian exports unless a similar agreement is negotiated between Australia and Korea.
With exports to Korea and Japan under pressure, the US market has been Australia’s “shining light”, said the report. Australian exports of boxed beef to the US have increase 38% year-to-date, largely as a result of the lean fine-textured beef (LFTB) scandal, which resulted in a sudden leap in demand for manufacturing beef in early 2012.
“Back in March 2012, the US was faced with the removal of the equivalent of 2% of their supply chain as the LFTB news broke – Australia was quick to move and took advantage of the increased demand. However, we need to note that while manufacturing beef exports to the US are up 57% this year relative to 2011, if compared to the last three-year average, they are only up 13%,” said Sivyer.
With the US facing widespread herd liquidation as the result of the drought, there could be further opportunities for Australia in the US and other key markets next year, the report said. It added that Australia would be less affected by grain prices – which are expected to remain high in 2013 – than US competitors, because only 34% of Australian cattle are grain-fed, compared to the majority of US cattle.
“This again provides opportunities for Australia in competing export markets such as Korea and Japan,” said Sivyer.