Full steam ahead for grainfed exports

Cattle on feed at the end of the June 2018 quarter reached a record 1.12 million head. Fast-forward to the close of the September quarter and it would be safe to assume the majority of those cattle have now left the production system.

Feedlots have played a pivotal role in supporting beef production this year, as dry conditions have limited pasture availability. Additionally, demand from Asian consumers for consistent, high quality beef has also continued to support elevated numbers on feed, even as soaring grain prices challenge the sector. Feedlot turn-off in 2017–18 totalled just above 2.83 million head, a record year for Australian fed cattle marketings.

Numbers on feed first surpassed one million head in the March 2017 quarter and, despite dropping just below that figure in the December quarter of 2017, numbers have bounced back to break fresh records. It’s perhaps no surprise that grainfed exports have followed suit, reaching 83,000 tonnes shipped weight (swt) in the September quarter and smashing the previous record of 75,000 tonnes swt on the quarter prior. A closer look at the grainfed export breakdown in the September quarter shows that shipments in July and August were the largest months on record, at 28,100 and 29,600 tonnes swt, respectively.

In 2017, grainfed exports totalled 273,000 tonnes swt (27% of total exports). With the final quarter of 2018 still to play out, grainfed exports are already tracking just above 227,000 tonnes swt (27% of total exports year to date). For grainfed exports not to achieve record levels this calendar year, shipments for the December quarter would need to fall below 46,000 tonnes swt, a figure only recorded once in the last 15 years (2012 March quarter).

Key grainfed markets

Established markets such as Japan and Korea have continued to soak up the additional supply of grainfed product, alongside China, which has seen demand for both high and low quality imported beef surge from a broad base of supplying countries.

For the year-to-date period, the three largest markets have accounted for 85% of all grainfed shipments.

Year-to-September grainfed exports:

• Japan – up 8%, to 116,100 tonnes swt (49% of total exports to Japan)
• Korea – up 13%, to 43,000 tonnes swt (34% of total exports to Korea)
• China -  up 88%, to 34,500 tonnes swt (30% of total exports to China)

Despite the remarkable growth of grainfed exports to China this year, it has been the frozen component of exports driving the increase. Chilled grainfed exports to Japan and Korea currently account for 61% and 46% of total grainfed shipments respectively. However, for China this figure is just 11%. Ongoing technical challenges continue to limit the number of plants that are eligible to export chilled product to China. Revisions to such access in the future will likely support growth in premium, chilled grainfed exports China, particularly if numbers on feed remain at elevated levels.

Numbers on feed

Pasture conditions throughout the September quarter continued to deteriorate, supporting the likelihood that numbers of feed will remain buoyant. The national saleyard feeder steer indicator averaged 279¢/kg live weight during the September quarter, almost identical with where it averaged in the June quarter. The Queensland 100-day grainfed steer over-the-hook indicator averaged 532¢/kg carcase weight, lifting 2% quarter-on-quarter.

Despite relative feeder and fed cattle price stability and robust global demand, the rise in grain prices during the September quarter, following strong gains throughout the year, have affected lot feeder margins. Wheat ex-Darling Downs averaged $432/tonne, up 13% on the June quarter and 36% year-on-year. In the short-term, this could be a limiting factor – as could a significant break in the season – for further increases in numbers on feed and subsequent expansion in grainfed exports.