Cattles producers in Australia, after a tough year, look set for higher prices thanks to soaring exports to China – one market where the country enjoys favourable market access, compared with rivals such as the US.
Australian cattle prices, as measured by the eastern young cattle indicator, look set to average 356 Australian cents per kilogramme in 2013-14, up 4.5% on last season, National Australia Bank said.
While only a small rise, it spells a vast improvement for producers from last season, when they suffered a "precipitous" fall of 24% in saleyard prices in the 10 months to May this year, hurt by drought and curbs on live cattle exports to the key market of Indonesia.
Indeed, Abares, the official commodities bureau, in June forecast a further decline in values this season, to a saleyard price of 280 Australian cents per kilogramme, the lowest in more than a decade.
'Insatiable export demand'
The improved outlook reflects in part rains which, besides improving the outlook for grains crops and boding well for feed prices, have revived pasture, reversing a trend of liquidation in many areas, although cattle stations in major northern rearing areas remain short of moisture.
With rains in the forecast for eastern area, conditions "should support prices in the near-term as restocker activity gains pace", NAB said.
However, Australia is also enjoying "what appears to be an insatiable export demand", particularly from China, to which exports hit 62,241 tonnes, slaughter weight, in the first half of this year – up 20 times on the 3,048 tonnes a year ago.
This is offsetting weaker demand from the key market of Japan, where Australian beef faces enhanced competition from US supplies after Tokyo authorities raised to 30 months, from 20 months, the maximum age on cattle from which US meat can be sourced – reversing rules imposed after a BSE scare a decade ago.
In South Korea, the US is expected to grow market share too, thanks to a cut of 2.6% a year in import tariffs on American beef, falling to zero in 2026, while imports from Australian are still subject to a 40% levy.
However, with China, Australia is enjoying increasingly strong agricultural trade, on grains such as sorghum and wheat as well as beef, with links between the two countries crystallised by the signing in April of an agricultural agreement.
This included an agreement by China to accredit 28 Australian cold storage facilities, and approve for export four Australian red meat processing plants
"We expect the strength in shipments to China to be maintained in the near term, supported by fundamentals of a rapidly-rising middle class in China who are likely to incorporate more proteins into their diet, as well as by a weaker Australian dollar favouring export competitiveness," NAB said.
The access that Australia offers to Chinese buyers, and those other major Asian countries, has also attracted considerable foreign interest in the country's agribusinesses, with US groups particularly enthusiastic of late.
Earlier this month, Cargill bought Joe White Maltings, the biggest Australian malting group, while Archers Daniels Midland is in the process of acquiring GrainCorp, and CHS last month revealed it had taken a 50% stake in grain handler AgFarm.
However, Beijing-Canberra ties have caused some unease too, particularly over Chinese investments in Australian land, such as of the Cubbie Station cotton farm in Queensland purchased last year, and a $560m lease over land in the Ord River irrigation area in northern Australia.
"Both of these investments have been somewhat controversial, the first due to the large water entitlements associated with Cubbie Station," US farm officials said in a report.
"The Ord investment was controversial because two Australian companies were the unsuccessful bidders.
"Even though the price paid exceeded the limit required to be reviewed by the Foreign Investment Review Board this did not occur because it is only a lease, not a permanent purchase."