The ‘steaks’ are changing for boxed beef exports, says Rabobank

The ‘steaks’ are changing in Australia’s boxed beef export markets, according to a new report from Rabobank. Exporters of boxed beef are facing a number of hurdles, the report says, including the strong Australian dollar which, combined with an aggressive US marketing campaign into Japan, is continuing to see US beef displace Australian in its key market.

Korea’s surplus of domestically produced ‘Hanwoo’ beef has also reduced imports from all countries. However, Rabobank says the situation isn’t all bad for Australian boxed beef exporters, with the changing dynamics also presenting opportunities.

According to report author Sarah Sivyer, the US is facing tighter supply and rising beef prices as a result of its worst drought in 50 years. The subsequent rising input costs are creating short- and medium-term opportunities for Australian producers.

Sivyer, a Rabobank senior animal proteins analyst, also said the increased domestic inventory in Korea is cyclical and will begin to subside in 2013 while exports to Japan will remain strongly correlated with currency movements.

Australian beef exports to Japan have fallen 7.5% over the past 12 months and 13% from the five-year average, Sivyer said, while Japanese beef imports from the US have jumped 5% in the past year.

“Reduced competitiveness due to a strong Australian dollar, aggressive marketing by the US and price-sensitive consumers in the Japanese markets have combined in a shift in demand away from Australian beef in 2012,” Sivyer said.

“In 2013, the US will be faced with a production decrease between 3 and 9%, depending on whether the drought continues. This tight supply, combined with increased local feed costs, will lead to increased prices, which will see limited availability for US product for export.”

In Korea, the government is reducing its herd size by offering financial incentives to stimulate the slaughter of ‘lower performing’ cows.

“Whilst production in Korea will increase in 2012 as a result of this increased slaughter, the government incentives, combined with low cattle prices, will lead to an expected slowdown in calf production moving forward into 2013,” Sivyer said.

“When Korean production starts to subside, we will then see some reinvigoration in the import market, which we expect to occur in late 2013.”

The lean fine textured beef (LFTB) issue has seen Australian beef exports to the US increase 57% relative to 2011. Australia was quick to move when the US was faced with the removal of 2% of its supply chain as the LFTB news broke, Sivyer said.

The report suggests that recent price spikes in feed grain in the US are expected to be sustained through to at least the first half of 2013 and, combined with reduced beef production, will continue to lead to higher domestic beef prices for the US.

“If it rains in the US, then producers will retain their heifers and production will be down closer to 9%. If the drought continues, production in the US is likely to be down closer to 3%,” Sivyer said.

“This again provides opportunities for Australia in competing export markets such as Korea and Japan with almost all of the US herd grainfed, compared with 34% of the Australian herd.”