Global wrap - Looking ahead to 2018

With 2017 drawing to a close we look ahead in anticipation to 2018 and what the key drivers for demand will be for the Australian red meat industry.

We have seen another strong year for exports of Australian beef and sheepmeat, despite increased competition in some key export markets and continued price pressures. Australian beef exports are shaping up to end 2017 in line with 2016 levels, with both chilled and frozen consistent with last year’s volumes.

Australian sheepmeat exports are on track to have their largest export year since 2014, with lamb set to record its biggest year of exports.

To read more on MLA’s analysis of beef exports for 2017 click here, and for MLA’s analysis of sheepmeat exports for 2017 click here.

Looking ahead to next year, we take a quick look at some of the driving forces that are likely to impact the fortunes of the Australian red meat industry in 2018 and beyond.

Beef

Global beef markets are expected to be incredibly challenging in 2018. As Australia’s beef production recovers following the herd rebuild, we are expecting exports to slightly increase to just over one million tonnes in 2018. 

Click to view larger chart

Our recovery comes at the same time global supply is expected to increase by over one million tonnes in 2018 to 70,630 million tonnes. Australian beef exports will be competing in a global market awash with beef. Some of the key factors driving increased global competition for Australia include:

• According to the USDA, US beef production is expected to increase 4.6% with exports increasing by 4% in 2018 – if this forecast is accurate, it would be the US’s biggest ever production year for beef. This will see increased competition in key export markets, specifically Japan and Korea.
• The Brazilian herd appears to be coming out of its retention phase and is expected to increase production with corresponding availability of export beef. While Brazil continues to be restricted in some of Australia’s major markets such as the US, Japan and Korea, they will continue to be a price setter in the more commodity driven sectors in the Middle East and China, which sets a baseline for these markets.
• The Indian herd is forecast to increase, driven in most part by the domestic growth in the dairy sector. This will see the continued increase in buffalo meat presence in key markets for Australia, particularly in the Middle East and in southern Asia.

While there is an increase on the supply side, there are ongoing strong demand fundamentals in global markets. However, with the increased supply, global beef prices will come under pressure, reinforcing the need for Australia to continually position itself as a superior supplier of high quality product.

Looking at some key markets in 2018:

• In the US, the economy is robust with low unemployment and it has seen a recovery in beef consumption, partially offsetting the additional beef supply coming on line. The US beef market is expected to remain robust with continued strong demand for lean Australian manufacturing beef and ongoing demand for chilled grass/pasturefed product.
• While the competition from the US in Japan and Korea is expected to be strong, Australia remains well positioned to continue to grow in these two critical markets. Grainfed exports to these markets remain strong and Australia’s reputation as a clean green supplier still underpins the demand from local supermarket shoppers that want a trusted product for their family.
• The other Asian and Middle East markets will continue to be very price-sensitive overall, but as the modern retail sector continues to mature, Australia is able to supply a consistent high quality product that suits the retailer and their customer’s needs.

Sheepmeat

Australian sheepmeat exports continue to perform well. While current supplies of lamb remain tight, placing pressure on price for overseas customers, the long-term fundamentals remain positive for the Australian sheepmeat industry, especially in some key export markets. New Zealand is Australia’s major competitor in global markets and their lamb production has been relatively flat over the last couple of years, with mutton production continuing to fall in line with the flock.

Over the 12 months to October, New Zealand sheepmeat exports have eased 1.1%. With flat exports out of New Zealand, and a modest increase from Australia, overall supply isn’t enough to satisfy the growth in global demand, hence ongoing strong prices in Australia and New Zealand are predicted.

Global demand for Australian sheepmeat remains strong. Key factors include:

• The US is Australia’s largest lamb market and demand is expected to remain strong throughout 2018. While sheepmeat is a minor protein in the US, strong demand at foodservice continues to underpin the demand fundamentals from Australian product.
• China demand has been strong over the past 18 months due to short supply from local sheep. While current demand is predominantly for breast and flap destined for the hotpot and skewer markets, there is a longer term opportunity to increase demand for additional cuts into the retail sector as it matures and Chinese consumers become more familiar with consuming this popular protein at home.
• The Middle East is a significant market for Australian sheepmeat and the factors that are expected to help drive the underlying growth and demand for imported products in the region include urbanisation, westernisation and growth in a number of wealthy households, a young population, a large expat professional population, forecast low inflation and a developing tourism sector. 2018 will see ongoing demand for high quality chilled carcase to underpin the demand from the region.

More information
Michael Finucan – MLA General Manager, International Markets
mfinucan@mla.com.au