The looming processing bottleneck courtesy of a severe labour shortage in abattoirs could cut Australia out of producing 200,000 tonnes of beef or $1.5 billion worth this year.
Farmgate fortunes for beef producers are going to be closely tied to how much of the anticipated hike in available slaughter-weight cattle processors will be able to take.
If processors can increase their current capacity to cope with the uptick in cattle supply in the pipeline on the back of big calf drops in recent years, Meat & Livestock Australia says slaughter this year will reach 6.625 million head - a 7.7 per cent lift on 2022.
However, MLA's just-released cattle market projections say if processors can't get the labour, more than 600,000 head will have to stay on farms.
With little easing in the labour situation likely at this point, the processing industry's peak industry council says how much of that additional supply abattoirs can eat into will depend on how the margins stack up for plant managers.
Reduced costs of cattle may make options like running extra shifts attractive and make some dent in the extra supply.
In a nutshell, the processing bottleneck can only put downward pressure on the market.
The Australian Meat Industry Council's general manager of industry affairs Tim Ryan said the MLA scenario was a good benchmark of what might be seen this year if plants don't get the labour they require.
He warned deferring the processing of more than half a million head this year will just compound the supply pressure down the track.
ALSO IN BEEF:
Fewer visa holders
The labour landscape was forefront on the mind of AMIC at the moment, he said.
"The huge contraction in temporary visa holders and strong competition from other parts of the economy has created a large vacancy of workers in plants," Mr Ryan said.
"Last financial year, we had 240,000 temporary visa holders - that's well below the 350,000 visas granted pre-pandemic. Even though it has picked up from the bottoms hit during the pandemic, it is still very low.
"That is essentially what is fuelling the shortage. A quarter of labour in processing plants was from overseas pre-pandemic."
The people now coming in were simply filling the backlog and the numbers were nowhere near where they needed to be, Mr Ryan said.
Plant managers report there is some room to shuffle people out of boning rooms, however less sub primal and value-adding production reduces returns so it is a fine balancing act.
The labour crisis comes against a backdrop of rising overall expenses for processors where Australia is already a very dear place to process beef with costs more than 50pc higher than major competitor the United States.
Australian Bureau of Statistics December quarter data shows the food manufacturing cost index is up 17pc from two years ago and the meat component is up 23pc.
Export outlook
On the beef exporting front, forecast falls in US beef production bode well for Australia in key markets like Japan, South Korea, China and the US itself.
However, there are a lot of risks emerging on the global stage, Mr Ryan said.
"We are entering a fairly uncertain economic period," he said.
"The just-released IMF (International Monetary Fund) outlook has most markets, particular beef's key export ones, looking at a growth rate at least half of what it was last year and running the risk of entering an outright recession.
"So a period of belt tightening is coming and there will be a lot of caution about holding too much stock and being caught out with expensive product and that's already flowing back to beef export orders."
Dynamics were shaping up differently with this global economic downturn, Mr Ryan said.
"It will be unlike Covid, which was really an upturn for beef because there was cash in people's pockets, and the previous global financial crisis where China was still booming economically," he said.
"With global interest rates rising, there aren't many economic bright spots about this year and that will flow into next year.
"So we are cautious about what beef consumer demand will look like this year and next."