The Australian cattle market, like so many other commodities markets, finds itself in unchartered territory, with many diverging factors impacting the industry. On the back of an excellent autumn break for many southern cattle producing regions and the desire to rebuild, renewed optimism swept the domestic cattle market. However, the domestic market increasingly faces the drag of demand uncertainty as COVID-19 outbreaks continue to disrupt the local and global marketplace.
Opportunities for producers to restock paddocks have emerged, with many of the southern states seeing significant improvements in soil moisture and water availability since February. This has been reflected in the number of cattle heading south. While central and south-east Queensland received a break, it came at the end of the northern wet season. Some good winter rainfall will be required to support deficiencies in the region and the latest three-month outlook does provide some confidence.
From a cattle supply perspective, a contraction in the availability of livestock has occurred, however, robust live export shipments and only a modest contraction in processor throughput for the year-to-May has resulted in a slight revision higher for cattle turn-off since the April projections update. At 7 million head, total adult cattle slaughter is forecast to drop 17% compared to 2019 levels.
The commencement of the herd rebuild is anticipated to occur towards the end of 2020, with current sustained high female slaughter rates, expected to taper off. The pace of the rebuild has been slowed by the high female slaughter rate, along with the strong levels of live exports and an adjustment lower to the national herd as at June 2020. The Australian cattle herd is now expected to increase by 1.9% in the year to 30 June 2021, lifting back to 25 million head.
National beef production is forecast to decline by 14% to 2.06 million tonnes carcase weight (cwt), with a sharp lift in average carcase weights helping to offset some of the decline in slaughter. Greater feed availability, low stocking rates and historically high cattle prices should all combine to place producers in a position to feed for longer and to finish to heavier weights, resulting in a growing portion of males in the total kill.
Global markets remain shrouded in uncertainty, and Australia is no exception, with the economy shrinking for the first time in nine years during the March quarter and the first recession in 29 years on the horizon. Since the start of the COVID-19 outbreak international market demand has been volatile, particularly due to challenges faced by the foodservice sector. Adding to this, supply disruption to some of Australia’s major competitors has led to a variable trading environment.
Despite the easing of restrictions in a number of key markets, the threat of a renewed outbreak remains a real possibility, hence until a vaccine is available COVID-19 will continue to disrupt the consumption of Australian red meat domestically and internationally.
In terms of cattle prices, a positive rainfall outlook continues to encourage producers, despite the unpredictable nature of COVID-19 in Australia's key markets. However, after posting records in June, cattle prices have started to soften and once spring hits, prices will likely come under further downward pressure, albeit remaining within a historically high range.