By Augusto Semmelroth | Source: DAFF, Steiner
The relentless strong pace of beef exports is yet to lose momentum, assisted by ongoing record cattle slaughter rates, a favourable exchange rate and the roll out of FTA agreements. This has been met by robust export demand from the US and Japan to see beef exports during Q1 2015 rise 7.7% above 2014 record levels to 297,055 tonnes swt.
With the herd rebuild phase now in full swing in the US, the availability of cows for slaughter and, consequently, lean beef supply, remains remarkably tight. This supply shortfall continues to be the main driving force behind the record beef shipments from Australia over the last 12 months, while the easing A$ has further assisted the trade.
Despite the temporary hiccup in demand fundamentals in February, and lower export prices, beef exports have tracked well above 2014 levels between January and March. As a result, beef shipments during Q1 surpassed 105,000 tonnes swt, a 56.4% increase year-on-year and twice the average volumes for the period.
As with the US, trade conditions with Japan have improved considerably in 2015. Despite the slow recovery in the Japanese economy, demand for beef seems to be finally picking up. The recent cuts in import tariffs, coupled with the loss of US competitiveness due to the appreciating US$, is giving Australian exports a further boost.
Although the immediate impact from the tariff cuts introduced by the Japan Australia Economic Partnership Agreement (JAEPA) is difficult to measure, the reduction in the tariff for chilled beef from 38.5% in 2014 to 32.5% in January, and a subsequent cut to 31.5% from April onwards, will further improve competitiveness in Japan.
On that note, beef shipments to the country hit 28,074 tonnes swt in March, a 24% increase year-on-year and the largest volume recorded for the month since 2011. This has seen total beef exports increase 12.7% year-on-year in Q1 to 67,886 tonnes swt.
South Korea and China
Despite the large volumes of beef available for export, South Korea, China and other emerging markets have struggled to compete with the US and Japan on price. To an extent, the impact on South Korea has been relatively modest, with beef shipments to the country falling only 2.8% year-on-year to 30,422 tonnes in Q1. Trade conditions with China, on the other hand, have deteriorated significantly to see exports plunging 27% from 2014 levels in Q1 to 13,840 tonnes swt.
The remarkable export levels seen during Q1 provide a clear depiction of the ongoing supply and demand imbalance across the globe and, more precisely, in the US and Australia. US importers are conscious that the supply pendulum will have to turn in Australia at some stage, so they are making sure they keep supplies flowing while they last. That’s positive news for grassfed cattle markets now and later in the year, particularly for cows.
The improved trade conditions with Japan are also welcomed by the grainfed cattle market as the recent tariff reductions will continue to enhance the competitiveness of Aussie beef in Japan. That is already providing strong support to grainfed cattle prices and will continue to do so.
China is already struggling to compete with US and Japan for supply, but conditions are likely to deteriorate further going forward when the bulk of exportable volumes taper off.
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