Western Australian Beef Commentary

Summary

• The size of the Western Australian (WA) beef cattle herd remained unchanged between mid-2013 and mid-2014 at between 1.8 and 1.9 million head; however this is 200-300 thousand head less than it was between 2006 and 2010.
• Total turn off increased by 22% in 2013/14 when compared to 2012/13.
• There was a 5% increase in cattle slaughter and a 56% increase in live exports when comparing 2013/14 to 2012/13.
• Beef production increased by 6% in Western Australia and 10% for Australia in 2013/14 when compared to the previous year and the trend appears to be continuing in 2014/15.
• The number of cattle on feed in Western Australia at the end of 2014 was the highest end of year total since December 2006 and nearly double the December 2013 total.
• The value of WA beef exports in the first eight months of 2014/15 have increased 48% compared to the same period in 2013/14.
• One third of the 236 000 live cattle exported from Western Australia in 2013/14 were exported to Indonesia; however this appears to be declining so far during 2014/15.
• Cattle prices have started 2015 very strongly. The January prices for both feeder yearlings and heavy cows are higher than the January prices received in each of the last five years.

Current herd situation in Western Australia

The Australian Bureau of Statistics (ABS) preliminary estimate for the WA cattle herd in mid-2014 is 1.84 million. With a relative standard error of 4.2%, that is statistically unchanged from the 1.88 million reported for mid-2013 (ABS catalogue 7111.0), but around 200-300 thousand head less than was reported between 2006 and 2010 (Figure 1).

The female component of the herd is reported at one million head also unchanged from mid-2013. Turn-off increased in 2013/14 by 22% compared to the previous year, though turn-off in 2011/12 and 2012/13 were the lowest reported across the previous decade (Figure 1). While cattle slaughter was responsible for a small year-on-year increase of 5%, the primary cause of the rise in turn-off was a 56% increase in live exports.

Figure 1 Closing number of beef cattle and number of cows and heifers in the Western Australian herd and total turn-off (slaughter plus live export) by year (figures are based on Australian Bureau of Statistics data, analysed by the Department of Agriculture and Food, WA)

Cattle turn-off and beef production

Slaughter statistics

A larger number of Western Australian cattle were slaughtered in 2013/14 than in the previous year and this trend has continued for the first eight months of 2014/15 (Table 1). Most of the three percent increase in kill has been of male cattle (up six percent) with the cow/heifer kill remaining constant.

These increases in slaughter numbers in WA are modest compared to the national increase of 12% in 2013/14, made up of an increase of 5% for bulls, bullocks and steers and 21% for cows and heifers.

As reported for WA, slaughter data for Australia from July to February 2014/15 shows a 9% increase over the corresponding period of 2013/14 comprising 3% more males and 15% more females.

The main drivers of increased slaughter across Australia are de-stocking activity in eastern Australia (as evidenced by increased cow/heifer turn-off) and strong international demand for beef meat.

Beef production and carcase weights

Beef and veal production for the first eight months of financial year 2014/15 is up by 2% and 9% for WA and Australia respectively.

Average carcase weights for cattle slaughtered in the first eight months of 2014/15 show little change on the same period in the previous year both for WA and Australia (Table 4). However, the carcase weights for cattle processed in Western Australia are around 20 kilograms or seven percent lighter than for Australia as a whole.

Live exports

Between July 2014 and February 2015, Australian exports of live cattle totalled 791 000 head, up 42% on the corresponding period in 2013/14, while WA exports were down 22% to just 143 000 head (Table 5).

As a result, the Western Australian share of live exports has decreased from 30% in 2013/14 to just 18% in the first eight months of 2014/15.

Of the 143 000 head exported from Western Australia between July 2014 and February 2015, 28% were exported to Israel, 26% to Indonesia, 15% to Vietnam, 12% to Egypt and 12% to Malaysia. Nationally, live cattle exports in the first eight months of 2014/15 were dominated by just two markets – Indonesia with 56% and Vietnam with 22%.

Cattle on feedlots

The members of the Western Australian Lot Feeders Association report that there were 35 000 head of cattle on feed in Western Australia at the end of December. This was nearly twice the figure for the end of 2013 and the highest December level since 2006.

Export value and trends

Beef and veal exports

Beef exports from Australia and WA have increased each year since the low of 2011/12, and have continued higher in the first eight months of 2014/15 (Table 6).

Western Australia’s beef exports are small in value relative to Australia’s total, but the increase is significant to Western Australian producers and processors.

Figure 2 tracks changes in the quantity (million kg carcase equivalents) and average price (AUD per kg) of beef exported from WA. The curved lines (isopleths) indicate points of equal total export value (AUD million FOB).

This chart shows that since 2011/12, both average price and export quantity have increased reversing the trend seen between 2008/09 and 2011/12.

Figure 2 Change in volume, million kg carcase equivalents (mkgs ceq) and average price (AUD/kg carcase equivalent, FOB) for beef exports from WAThe curved dotted lines (isopleths) indicate price/quantity combinations with equal total value (AUD million FOB)The 2014/15p estimate is a projection for the full year assuming the year-to-date change applies to the full year (figures are based on Australian Bureau of Statistics data, analysed by the Department of Agriculture and Food, WA)

These increases are reflected in the rising value of exports to Japan, the Middle East and Greater China and the recent, but sharp, rise in export value to the USA (Figure 3).

In the first eight months of 2014/15, beef and veal equivalent to 43% of production was exported leaving apparent domestic consumption at 57% of production.

The 2014/15 export share is 10% higher than the average export share of the previous ten years (67%), a reflection of the current strong export demand for beef.

Figure 3 Value of WA beef exports as rolling 12 month total (AUD million/year) (figures are based on Australian Bureau of Statistics data, analysed by Department of Agriculture and Food, WA)

Live exports

The value of live cattle exports from Western Australia declined by 16% in the first eight months of financial year 2014/15, compared to the corresponding period of 2013/14.

This is less than the 22% decrease in the number of cattle exported, possibly reflecting rising prices, however it is in stark contrast to the 68% increase in export value from Australia (Table 7).

Figure 4 follows changes in the number and average value of live export cattle between 2008/09 and 2014/15.

While 2013/14 saw a sharp increase in the number of cattle exported and a small increase in the average value, 2014/15 has seen with fewer cattle exported but at a substantially higher average value per head.

Figure 4 Change in number (thousand head) and average value (AUD/head, FOB) for live cattle exported from WAThe curved dotted lines (isopleths) indicate price/quantity combinations with equal total value (AUD million (FOB)The 2014/15p estimate is a projection for the full year assuming the year-to-date change applies to the full year (figures are based on Australian Bureau of Statistics data, analysed by the Department of Agriculture and Food, WA)

Market indicators

2015 has started with very strong prices for both feeder yearlings and heavy cows.

The opening price of 224 c/kg liveweight for feeder yearlings is the highest January price received in the last five years as demonstrated in Figure 5. It is 22% higher than it was in 2014 and has increased further in February and March.

Figure 5 Trend in Western Australian feeder yearling saleyard indicator (cents/kg liveweight) since 2011 (figures are based on MLA/NLRS data, analysed by the Department of Agriculture and Food, WA)

Figure 6 demonstrates that the price for heavy cows in the first three months of 2015 is also very strong.

At 213-231c/kg liveweight it is well above the levels reported for any month since 2011 and about 50% higher than for the same period in 2014.

Figure 6 Trend in the Western Australian heavy cow saleyard indicator (cents/kg liveweight) since 2011 (figures are based on MLA/NLRS data, analysed by the Department of Agriculture and Food, WA)

Insights and opportunities

Market analysis – USA

Cattle production is one of the most important agricultural industries in the USA. They currently have the fourth largest cattle herd after India, Brazil and China and are the world’s largest beef producing nation producing 10.8 million tonnes cwt in 2014 (MLA 2015).

Production systems range from cow calf operations grazing pastures to feedlots where cattle are fed grain to finish them for slaughter.

In recent years there has been a reduction in the US national cattle herd. It fell from 98.2 million head at the beginning of 2000 to just 88.5 million head at the beginning of 2014, before rebounding slightly to 89.8 million head as of January 2015 (USDA).

The national herd consists of 729 000 beef cattle operations and 915 000 cattle and calf operations.

The five top cattle producing states are Texas, Nebraska, Kansas, California and Oklahoma (Beef USA).

In a similar fashion to Australia, the trend is for more cattle being raised on fewer, larger farms due to economies of scale.

During the 20 years prior to 2010 the number of cattle operations has fallen 28% and beef cow operations by 21%, however the average number of cattle per operation has increased by 36% (USDA National Agricultural Statistics Service 2010).

In recent years the USA has been one of the strongest markets for Australian beef.

The value of Australian beef exports increased dramatically during 2014 and this trend appears to be continuing in 2015.

While not quite as dramatic, a similar story can be seen in the surge in the value of WA’s exports of beef to the USA (see Figure 3).

During 2013/14 the USA was Western Australia’s 11th largest market by value and 10th largest in volume terms; however this has increased dramatically during the current financial year. The US is now sitting in third place for value and fourth place for volume of total beef exported from Western Australia. 

There has been a 510% increase in the volume of beef exported to the US from 651 000 kg carcase equivalents (2013/14) to 4.0 million kg carcase equivalents (2014/15), despite only having eight months of data to consider for the current financial year. This resulted in a 721% increase in the value of exports to the US from $2.2 million to $18.3 million.

Strong growth in the US demand for Australian beef has been due to tight American supplies and high demand for lean manufacturing beef. There was also reduced slaughter in the US during 2014 due to low cattle numbers and herd rebuilding.

Australia was the largest source of imported beef for the US in 2014 during which the import quota was 413 214 tonnes.

Manufacturing beef made up 70% of total Australian beef exports to the US during this time.

In 2015 the quota has been raised to 418 214 tonnes. As of early March, Australia had already exported 53 767 tonnes shipped weight (swt)- 114% higher than for the same period in 2014 and 12.9% of the quota so far (MLA 2015).

Despite a continued reduction in the US cattle herd, beef production has risen in the 30 years prior to 2010.

Since 1979 commercial beef production has risen 22% whilst the cattle inventory fell by 15%. This is partly due to the 23% increase in average dressed weight of cattle over this time (USDA National Agricultural Statistics Service 2010).

Competitor analysis – India

India is home to the largest cattle herd in the world.

At the start of 2015 the national herd contained over 301 million head. This is down from 306 million head in 2009, but still above than the 285 million reported for 2000.

A high proportion of people live in rural areas, where over 70 million people rely on some form of livestock production to form part of their income.

Cattle make up 37% of the livestock inventory and buffalo make up a further 21% (Figure 7).

Figure 7 Distribution of livestock population in India (Source: 19th Livestock Census 2012, Ministry of Agriculture- India)

The majority of cattle in India are classified as nondescript breeds and herd size is very small with about 90% of cattle kept in herds of 1-3 animals.

Cattle are generally multipurpose and are used for milk production, draught power and manure production (1).

Feed supplementation and grazing is limited due to the high cost of feed concentrates and the scarcity of grassland.

The majority of cattle processed by the beef industry are those that are of no more use to the farmer so are sent to slaughter (1).

The main limitation to the Indian cattle industry is the poor genetic base and low productivity which is furthered by poor feeding practices, uncontrolled and unmonitored breeding and poor information sharing from scientific research to farmers (1).

In order to increase productivity, exotic breed sires are being introduced into the country as well as government funded genetic research and development programs and subsidies to allow farmers to access these developments and services (1).

The previous Indian government had a policy of increasing the supply of buffalo meat, which led to an increase in the amount of beef exported per year as buffalo is exported as beef (MLA 2015). Partly due to this, slaughter rates have more than doubled over the last 15 years.

Slaughter has risen from 15.3 million head in 2000 to 38.3 million head so far for 2015- an increase of 151% (Figure 8).

India has a predominantly Hindu population which believes in the sacredness of cows. This makes the slaughter and consumption of cattle a volatile issue. Some Indian states legally protect cattle from slaughter and others permit only licensed cattle slaughter (1).

(1) Cottle D & Kahn L 2014, Beef cattle production and trade, CSIRO publishing.

Figure 8 Indian cattle slaughter (million head) per year (figures are based on IndexMundi data)

In recent years India has both increased its processing capacity and maintained a cost advantage over competing nations.

The cost of processing cattle in India is $2.88/kg, compared to $4.52/kg in Brazil and $4.73/kg in Australia (MLA 2015).

Low production costs in India and strong demand from India’s South East Asian neighbours have created a strong beef export market in the region (Cottle & Kahn 2014).

In 2013 India was the world’s largest beef exporter by volume (1.56 million tonnes shipped weight (swt)), followed by Brazil (1.18 million tonnes swt) and Australia   (1.07 million tonnes swt).

India is classed as Foot and Mouth Disease (FMD) endemic which limits trade opportunities.

India sends large volumes of beef to Vietnam, Thailand, Malaysia, Saudi Arabia and the Philippines, which are also some of Australia’s major markets.

They are excluded from trading with Japan, the US and Korea.

In 2013 India signed a MOU with China for beef trade however the trade has not eventuated as yet (MLA 2015).

The dashed line in Figure 9 shows that there has been a sharp rise in beef exports since 2009.

Over the same time period domestic consumption has levelled off, while production has continued to increase in a linear fashion.

When the current government came to power in May 2014 they denounced, on religious grounds, their position as one of the world’s largest beef exporters (MLA 2015).

Figure 9 Indian beef production, consumption and exports in thousand metric tonne (MT) carcase weight equivalents (CWE)

Australian dollar exchange rate

As shown in Figure 10, in recent months the value of the Australian dollar has fallen against the American dollar to US$0.77 in March 2015.

This should be beneficial for the majority of Australia’s agricultural commodities due to the heavy reliance on export markets, with much of that trade written in US dollars.

Thus the lower Australian dollar makes Australian products cheaper in international markets thus increasing demand.

Generally this would make Australian goods more competitive in overseas markets, however the currencies of some of our competitors have also lost ground against the greenback.

Relative to the average exchange rate in 2011, the Australian dollar in March 2015 is around 25% lower at between US$0.76 and US$0.78; however, the strength of the currency of one of our major competitors, Brazil, has declined on average 41% in the same time period.

The New Zealand currency however has only decreased in value by 6% during this time.

Figure 10 Exchange rates against the US dollar for currencies of the European Community, Australia, New Zealand and Brazil (figures are based on data from http://fx.sauder.ubc.ca/)

Live export ships

The live export of cattle is one of the most widely used avenues utilised by producers to turn-off stock.

This is especially true in the north of WA where it is often viewed as the only viable avenue available due to the expense of transporting stock to distant processing facilities.

Currently there are about 28 livestock ships that are licenced to carry cattle, nine of which are also licenced to carry sheep.

They have a median capacity of 3500 cattle with half of these ships capable of carrying between 2500 and 6500 head of cattle.

The larger boats with capacities up to 20 000 head are also designed to carry sheep instead of, or in addition to, cattle.

Figure 11 Distribution of ships licensed to carry livestock by their cattle capacity (head per voyage) (based on data collected by the Department of Agriculture and Food, WA)

If all these ships were carrying their maximum cattle load, the total capacity would be about 150 000 head, though not all these ships service Western Australian ports.

The most frequent destination for live cattle from Australia is Indonesia.

In 2014, 171 voyages including four split-loads were undertaken to Indonesia.

Seventeen of these voyages left from Broome including three split loads, nine from Fremantle including three split loads, six from Wyndham and three from Geraldton.

Also during 2014, 55 voyages were undertaken to Vietnam and 26 to Malaysia from Australia.

There were 30 voyages to China, however these were not for feeder/slaughter cattle.

Trip duration can be quite variable and depends on a combination of factors including the ship itself, the distance between loading and destination ports, as well as if they stopped at other ports along the way.

Weather conditions also have an impact, as do waiting times to berth to load and unload.

In 2014, the average voyage time from Broome to Indonesia was just over five days, to Vietnam nine days and eight days to Malaysia.

Average voyage durations from Fremantle in 2014, were nine days to Indonesia, 11 days to Malaysia and 21 days to Israel.

A single voyage to Vietnam took 19 days.

Western Australian beef cattle turn-off for 2014