2. Australian cattle industry projections - beef farm incomes
The most recent results for the financial performance of beef cattle producing farms were released by the Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES) in June 20112. While 2010-11 had much better seasonal conditions, in financial terms it was only a slight improvement, as the higher cattle prices on offer were offset by reduced turnoff and increased expenditure.
For southern Australian beef producers in 2010-11, average farm incomes increased 15% year-on-year, to A$66,200. This was partly assisted by increased returns from other enterprises, namely cropping and lamb production. The main change to the balance sheet for southern Australian producers was a decline in fodder costs, dropping 45% on the previous year, as a result of the better season.
For 2010-11, the average northern Australian beef farm recorded a farm cash income of A$60,100, an increase of 54% on the previous year, with average farm business profits returning to positive territory (A$5,500).
Again the main change to the balance sheet for northern Australian producers was a decline in fodder costs, down 41% on the previous year.
For the current 2011-12 financial year, the farm cash income for Australian beef producers is anticipated to improve again. While the favourable season will again restrain operating costs, such as additional fodder and grain purchases, the higher cattle prices will also assist incomes. However, it should also be noted that the higher cattle prices do influence operating costs for those producers looking to purchase stock for further finishing or herd rebuilding.
For the first half of the 2011-12 fiscal year, Australian indicative saleyard cattle prices have averaged 3-9% higher compared to the corresponding period in 2010-11. Not surprisingly, the highest increase in prices has been for young cattle which, when combined with improved branding rates, should translate into improved returns for cow-calf producers. Despite continued herd rebuilding, the sale of additional stock and sustained higher cattle prices should be reflected in higher beef farm incomes.
Looking at income prospects for Queensland producers for 2011-12, the influence of higher direct-to-works cattle prices, along with additional cattle entering the markets in 2012, should also be reflected in additional income. According to MLA’s NLRS indicative direct to works quotes for July to December 2011, prices for heavy steers (300-420kg cwt) averaged 5% above the corresponding period in 2010, while rates for cows and trade steers averaged 17% and 7% higher, respectively.
However, the most significant financial challenge in 2011-12 will be for northern cattle producers who traditionally target the live cattle export trade. Several conflicting indicators make it very difficult to accurately assess the income profile for 2011-12, given the massive impact on incomes from the temporary trade suspension to Indonesia, combined with the limited import permits for cattle and regulated supply chain arrangements in operation for 2012.
In contrast, live cattle prices for those with eligible cattle were high throughout the final four months of 2012, but are likely to be checked with import permits limited in 2012. Many producers who are geographically situated to send cattle to either slaughter or live export trade have reportedly retained cattle to push them through to higher weights for the slaughter market. The income benefit of this is most likely to fall into the final quarter of the 2011-12 fiscal year, or early in 2012-13.
However, regardless of the eventual final market for these northern Australia cattle, the series of events that hit the live cattle export industry in 2011 will have flow-on financial effects for producers for many years. While this will vary for each enterprise, it could include restricted cash flow, lowered property values, disrupted on-farm productivity and higher transport costs.
Overall, the financial situation for many of Australia’s beef and cattle producers should take another step forwards in 2011-12, underpinned by the influence of another good season on reducing operating costs and higher cattle prices. However, for northern Australia’s cattle producers, uncertainty will continue to plague the industry, especially with the restricted import permits to Indonesia.
For 2012-13 and beyond, additional cattle sales and historically above average prices (assisted by rising global beef prices and possibly a falling A$) should continue to assist farm cash incomes, hopefully easing the financial damage caused by so many years of drought prior to 2010. However, as every producer knows, a return to drier conditions could significantly and rapidly alter this outlook.
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