Cattle producers walk rebuilding tightrope

Cattle producers walk rebuilding tightrope

Beef
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MLA's latest projections point to national herd entering rebuild phase

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BEEF producers will this winter walk a precarious tightrope between cashing in on what is expected to be historically high cattle prices and rebuilding breeding herds.

All decisions will have to be made against the backdrop of what those with decades in the grazing business are describing as the most volatile and unpredictable market dynamics they've ever seen.

Meat & Livestock Australia's April cattle industry projections, released today, point to a severe shortage of cattle for sale throughout winter. MLA forecasts adult cattle slaughter will be just 6.9 million head in 2020, a drop of 19 per cent on last year.

Higher-than-average rainfall for much of the country this year has already seen large areas of cattle-producing country provided an abundance of feed and the three-month rainfall outlook from here is very good.

MLA senior market analyst Adam Cheetham said for the first time since 2017, many producers were now in a position to seriously consider rebuilding depleted herds, particularly across southern Queensland and NSW.

MLA's experts believe cattle turnoff will decline to the lowest point since the mid-1990s and remain at historically low levels for the next two years.

The result will be a sharp drop in beef production. The expected 2.05 million tonnes carcase weight now forecast for 2020 will be 16pc lower year-on-year.

The limited domestic supply combined with strong restocker demand is expected maintain support for cattle prices despite the COVID-19 headwinds - a situation that puts Australian out of sync with global price trends.

For producers, that means weighing up selling at very good rates and the need for cash flow against the natural instinct to make full use of feed and to rebuild for future prosperity.

Analysts and consultants this week urged producers rushing in to pay big money for young stock to look behind the scenes at what is happening globally in the meat industry, particularly the collapse of cattle markets in the United States.

SEE: US pandemic woes and what that means for Australian beef

The devastation of the food service trade is seriously affecting demand for the high-end beef Australia sends to key markets like Japan, Korea and China.

Northern NSW beef consultant Bill Hoffman said models were suggesting that those with a recovered feed base who could access the finance to replace breeders now and return to a strong cash flow position as soon as possible will be better off in the medium term.

"The key message for those with depleted herds is get your cash flow back in order," he said.

"That, of course, is easier said than done because people have extended borrowings and incurred additional debt through drought. But talk to your financiers.

"Recovering cash flow is so important because costs associated with running a grazing business don't change a lot whether you are fully or partly stocked."

One thing in a producer's favour at the moment is very low interest rates.

There was, however, some risk associated with buying light steers at the moment, given the distortion between buy price and the price similar cattle at a higher weight were making in today's market, Mr Hoffman said.

"A key point coming into play is what will these steers be worth in 18 months - and that we don't know and it is very difficult to take a position on given the current volatility," he said.

The 'unknowns' factor could mean many producers will take a more conservative approach and gradually rebuild.

Central Queensland cattleman David Hill said while many properties had a large body of feed now, pastures were quickly coming under lack-of-moisture stress.

Issues like buffel grass blight and pasture dieback were also coming into play.

"And everyone knows you can't count on a season until you get it," he said.

"We have twice as much feed volume as we're used to - we have four foot high buffel but in some areas it's starting to hay off now already.

"We sold older cattle we'd normally finish this year and we have concerns around whether young cattle can utilise the feed we have - we may end up supplementing earlier than we did last year.

"We bought expensive cows and calves earlier in the year and we are regretting that now."

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