Report Highlights

Australian feedlot activity is currently at record levels, both in terms of feedlot capacity (in excess of 1.1 million head) and numbers of head on feed (940,000 head in June 2006). Continued dry weather and poorer pasture conditions may see cattle on feed numbers increase in the short term, while in the longer term, a downturn in winter cereal production would likely lead to numbers on feed falling. Feedlot activity should provide an indication of a “floor” for exports of Australian beef to Japan, as recent data suggest nearly 60 percent of Australian cattle on feed are destined for the Japanese market. Traditionally, Australia exports abound two thirds of total production. Slaughter, production and exports are all projected to increase in 2007.

Summary

Despite the assumption of a return to normal weather conditions, post anticipates that dry weather already experienced will likely place systemic pressure on Australian livestock industries. Reduced fodder and water reserves as a result of dry winter conditions will likely see increased turn-off of cattle. Reduced supplies of feed-grain will also likely see increased turnoff of feedlot cattle over the longer term, although feedlot numbers may increase in the short-term.

Post forecasts slaughter and production to increase, partially at the expense of increased inventory, in the last quarter of 2006 and the first half of 2007. Increased production during this period is expected to be nearly all exported. Both industry and government sources anticipate a decline in historically high cattle prices in CY 2007; in line with similar declines experienced in CY 2006 year-to-date. Dry conditions, should they continue, would likely see prices for cattle fall further, particularly for young cattle.

The re-entry of US Beef into the Japanese market has been well-publicized within Australia. Sources located in the packing sector are not anticipating a decline in exports to Japan, despite increased competition in that market while other industry sources forecast a minor decline. Increased exports in CY 2007 will likely see increases in beef shipments to the U.S. particularly if drought conditions, currently being experienced, continue. It is important to note, that despite the prospects of drought and price decline, the Australian cattle industry maintains a positive outlook and can be expected to expand production wherever climatic conditions allow.

Swine: General

The Australian pig meat industry has been under sustained pressure for the past decade. Increasing levels of imports, together with historically high grain prices have reduced profitability.

Pig meat production is greatly affected by the price and availability of feed grain, which makes up nearly half of production costs. Despite producing large amounts of grain, Australia dedicates very little productive capacity to feed grain production. Instead, Australia feed grain users tend rely on grain priced at the lower end of the market, typically weather damaged wheat and barley. Furthermore, Australian quarantine regulations generally do not permit the importation of whole grain. These factors have constrained pig meat production within Australia.

More recently, dry conditions have seen a sharp reduction in expected grain production, as dry weather reduces yields in the current winter cereal crop. This will likely constrain production of pig meat in CY 2007.

Inventory

Inventory for CY 2007 is forecast to close slightly lower at 2.47 million pigs. Drought conditions in CY 2006 and subsequent smaller grain harvests are expected to see a tightening of grain supplies in CY 2007 and will likely constrain inventory to lower levels. A closing inventory of 2.47 million head would be considered below average according to ABARE’s historic data. Tighter grain supplies, along with relatively high levels of imports have maintained downward pressure on the industry as a whole.

Slaughter

Slaughter is forecast to decrease slightly to 5.30 million head in CY 2007, driven by lower sow numbers. According to ABARE’s historical data, slaughter levels such as this would be considered about average over the past decade.

Production

Production of pig meat in CY 2007 is forecast to decrease to 378 TMT, down slightly from the 380 TMT estimated for the previous year. Lower slaughter due to reduced availability of pigs for slaughter is likely to see pig meat production fall in CY 2007.

Production of 378 TMT is considered about average, according to historical ABARE data. The table below shows higher pig meat production from 2001/02 to 2004/05, during which Australia produced larger amounts of feed grains suitable to intensive livestock production.

Trade: Exports

Exports for CY 2007 are forecast at 54 TMT, down slightly on the previous year. Lower production due lower slaughter is likely to constrain the availability of pig meat suitable for export. Exports for CY 2006 have been revised upward to 56 TMT in line with year-to-date (Jan- June) data showing significant increases on the same period for the previous year. Exports to Singapore, which is Australia’s largest export market for pig meat, appear to have grown sharply during this period.

Imports

Imports are forecast at 99 TMT for CY 2007, up on the revised estimate of 90 TMT for the previous year. Lower forecast production and a return to normal stock levels are likely to see imports return to levels achieved in CY 2005.

Australian pig meat producers challenged Federal Government quarantine laws early in CY 2005. This precipitated sharply increased importation of pig meat in anticipation of changes to import regulations. As a result, import levels in CY 2005 were inflated as were closing inventories for that year, subsequently reducing the need for imports in CY 2006. Post anticipates a return to normal levels for imports and stocks in CY 2007.

U.S. Imports

Total imports from the U.S. for CY 2007 are forecast at 23 TMT, up on the 20 TMT estimated for the previous year. Year-to-date data for CY 2006 (January-June) show imports from the U.S. down sharply, however post believes that this is due to high levels of opening inventory in CY 2006 and that closing inventory should reflect the longer-term average and see imports increase again in CY 2007.

Further Information

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