8. Australian cattle industry projections - Australian beef market
2011 was a unique year for the Australian beef market, marked by sluggish retail demand particularly in the second half of the year, tighter cattle supplies and stronger beef price competition between the two largest supermarket chains. Given the series of unprecedented events that hit exports markets in 2011, with the record A$ and downturn in volumes to Japan and the US, previous years would have seen much more beef remain in the Australian market, boosting consumption and impacting cattle prices.
However, in 2011 Australian beef consumption declined, with smaller export markets outbidding and absorbing additional product. Also, the favourable season throughout 2011 maintained the demand and prices for young cattle, leaving Australian focussed processors competing with producers and feeders for the relatively tight supply of suitable cattle.
With total beef and veal production for 2011 estimated to have been up 0.7% on 2010, at 2.15 million tonnes swt, and a 2.8% increase in exports for the year, total Australian market utilisation is estimated to have been 728,000 tonnes swt – down 3% on 2010 levels, but above both 2009 and 2008 utilisation.
While the supply factor only tells part of the story for the past year, it was the demand factors within the market that created much more intrigue throughout the year. The two main features for the Australian market in 2011 were stronger price competition between the two largest supermarket outlets and the general weakening in consumer confidence and spending as the year progressed.
The well-publicised beef price competition between the two major supermarkets throughout 2011 had several impacts, but mostly on the average retail prices of beef in the Australian market. According to figures collected and released by the Australian Bureau of Statistics (ABS), average retail beef prices for January to September declined 4% year-on-year, to average A$15.51kg/head (national average beef price taken over a series of cuts, capital cities and outlets). For the September quarter 2011, at A$15.40/kg, retail beef prices were the cheapest since December 2007, and had declined for the previous five consecutive quarters.
Beef’s price competitiveness improved against the other major protein options in the Australian market, namely chicken, but also lamb and pork. While retail beef prices for January to September averaged 4% lower year-on-year, chicken (A$4.12/kg) prices increased 2%, while lamb (A$15.91/kg) jumped 10% and pork (A$13.13kg) contracted 2%.
While retail beef prices finished 2011 at their lowest level in almost four years, and actually increased in price competitiveness against lamb, pork and chicken, there was no demand response from Australian consumers – suggesting a significant demand decline, as consumers tightened spending.
The other major feature within the Australian market for 2011 was a steady, but noticeable, decline in consumer sentiment, felt across almost all sectors of the economy. Linked to a combination of increased living costs (energy, petrol), carbon tax fears and uncertainty surrounding the state of the global economy and financial market volatility, Australian consumers became increasingly frugal.
Successive interest rate cuts in November and December highlighted the slowdown in the economy, but were too late in the year to spark any great improvement in consumer sentiment for 2011. While the influence of these cuts may start to affect spending during the first half of 2012, it has done little to offset the issues of higher living costs and the concerns around global financial markets.
Indeed, one of the flow-on effects of consumers’ frugality may have been a shift towards the cheaper meat items, especially chicken. While chicken prices did rise throughout 2011, it was still far cheaper than beef.
Beef remains expensive against chicken and pork, and as such, demand suffers as price becomes more important in purchasing decisions. Reinforcing this is the results from the latest Penfold Food Tracking Survey, which showed a significant increase in poultry purchases in 2011 at foodservice - by 6% between May and November 2012.
For 2012, beef utilisation is forecast to increase 1.7%, to 740,000 tonne swt, with some improvement in economic conditions and consumer sentiment assisting demand – implying a roughly stable per person consumption of 32kg/head. The volume of beef available for utilisation on the Australian market is forecast to remain constrained, with export markets expected to take 76% of the 2.3% increase in beef and veal production.
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