Sell or rebuild? Beef’s great balancing act

While the benchmark Eastern Young Cattle Indicator (EYCI) is sitting at a five-month low of 642.25 cents per kilogram carcase weight, the market is still very strong historically speaking, with the EYCI averaging more than 55c above year-ago levels during November.

That relative buoyancy should hold.

Restockers, with feed conditions firmly in their favour, are tipped to snaffle whatever they can before the Christmas break – continuing their run of being the dominant driving force behind the strong cattle market.

It’s been that strength that has prompted decisions to sell when seasonal conditions, and long-term forecasts, point to significant value in rebuilding.

However, calls are starting to emerge for serious consideration of wearing opportunity cost in the name of capitalising down the track.

ANZ’s Head of Agribusiness Mark Bennett says there is a risk of jeopardising long-term earning capacity unless the industry, as one, can adapt to surging global demand for beef.

The bank’s recent agricultural insights report ‘Cattle Call’ outlines an AU$7 billion growth opportunity by 2025 if the nation’s herd size can be increased significantly.

“The cyclical nature of this industry teaches everyone to take opportunity when it arrives - to think long-term you have to give up on some of that,” Mr Bennett said.

“While that is somewhat easier to do when you have great conditions in front of you, taking advantage of historically strong beef prices is also very attractive.”

Business is always a balancing act for the cattle producer but the choice now presenting, between rebuilding to meet growing global beef demand or cashing in after some very tough years, is particularly critical, according to Mr Bennett.

“A central Queensland producer who had to destock at any price due to drought would be, quite fairly, carefully considering his capacity to restock,” he said.

“At the same time he is thinking ‘I have a big investment in this property, not stocking it when I have grass and water makes no sense.”

The risk of letting supply slip was great, given export markets remain the driving force behind demand for Australian beef, he said.

“If we work hard in global markets to bring more value to our offering and then find the supply is not there, we have a lot to lose,” Mr Bennett said.

“Those markets look to alternative sources.

“We’ve had a good run into China with Brazil and the US locked out but that’s no longer the case.

“Brazil has certainly taken market share from us but that is not necessarily all bad news.

“If you have this growing population creating a dramatic impact on the amount of beef needed in China, maybe Brazil is keeping beef consumption alive and well and does us a favour long term until we have more supply.”