Beef returns back

Australian beef exports for June 2017 were valued at $684.68 million FOB, taking the 2016-17 fiscal year total to $7.1 billion – the third highest fiscal year on record (ABS).

The volume of Australian beef exports in 2016-17 edged below the one million tonne mark for the first time since 2011-12 (963,000 tonnes swt), declining 17% year-on-year, as a result of two years of drought-driven herd liquidation and increasing global competition. The subsequent impact is reflected in the decline of the total beef export value – 16% lower than the 2015-16 fiscal year ($8.5 billion).

The beef export unit value ($/kg) for 2016-17 averaged $7.18/kg, up 1% from year-ago levels and 27% higher than the five-year average ($5.64/kg). Chilled beef unit values increased marginally (2%) year-on-year, to $10.69/kg, while frozen unit values were unchanged at $5.85/kg.

The appreciation of the Australian dollar (predominantly against the US dollar) has also been a contributing factor in reducing the competitiveness of Australian product in the global market. In 2016-17, the A$ averaged 75.3US¢ – 4% higher than the 2015-16 fiscal year (72.8US¢).  The A$ has since continued to strengthen – momentarily breaking 80US¢ in July.

Key Markets

In 2016-17, compared to the previous year, the value of Australian beef exports to the US totalled $1.5 billion, down 40% year-on-year. Export volumes decreased 37%, to 209,500 tonnes swt, with frozen product recording the greatest decline. As a result, there was a 43% decline in the value of frozen beef exports to the US for the year. Reduced availability of Australian grassfed beef, combined with an increase in US beef production and a weaker US dollar, underpinned the decline in export values.

Shipment values to Japan lifted 5%, to $1.9 billion, supported by a 4% increase in beef exports (278,799 tonnes swt), as Japan returned as Australia’s largest beef export destination, on a value and volume basis. This rise was predominantly driven by demand for frozen beef, which totalled $810 million – 17% higher year-on-year. High Wagyu cattle prices in Japan and falling tariffs under the Japan Australia Economic Partnership Agreement (JAEPA) have supported growth in this market. The average export unit value to Japan increased 2%, to $6.98/kg.

The value of shipments to Korea eased 7%, to $1.2 billion – albeit from a high base the previous year as volumes to Korea reached record levels. Despite the modest decline, as a result of lower Australian production and growing US competition, 2016-17 export values to Korea were the second largest on record and the long term prospects remain strong.

Export values to China declined 14%, to $745 million, due to lower Australian production and competition from lower-value Brazilian product challenging Australian exports. However, the unit value to China averaged $7.17/kg, up 7% from 2015-16, as a result of robust demand for higher-valued grainfed product. Grainfed exports to China increased 11% year-on-year, to 26,000 tonnes swt.

Prospects

In the face of growing global competition and industry forecasts for the A$ to trade in a range of 75¢-80US¢, Australian beef export returns will continue to be challenged in the short term. However, the forecast increase in domestic production, rising global demand for higher-value chilled product and the prospect of improving trade access with some of Australia’s highest unit value markets (UK and Europe), will help to support the long term value growth for Australian beef exports.