Sydney | Reuters — Exports of Australian beef are likely to fall faster than previously expected as slaughter rates drop off as a two-year drought eases, threatening to add fuel to a rally in U.S. beef prices.
A record slaughter rate has dropped nearly a fifth in the last two weeks, as farmers start to rebuild a herd that has fallen to the smallest in 17 years.
Farmers typically send more cattle to slaughter in drought conditions given a lack of pasture and to cut feed costs.
A drop in slaughter rates will mean lower exports from the world’s third-largest beef seller and risks boosting U.S. beef prices that have jumped nearly a fifth since January 2014.
U.S. prices soared after drought in California wilted pasture, cutting the national herd to a 63-year low in 2014. Australian imports helped fill the gap and while cheaper feed is allowing the U.S. herd to recover, imports are set to stay high.
“The liquidation of Australian cattle cannot continue and this will pose a question for the U.S. How much will they be willing to pay for supplies, particularly given the much cheaper alternate protein sources available?” said Matt Costello, an animal proteins analyst at Rabobank.
In the first two weeks of April, just shy of 280,000 head of cattle were slaughtered, more than 17 percent lower than the two-week period one-month earlier, data from industry body, Meat and Livestock Australia, showed.
Further falls are likely should a favourable forecast from the Australian Bureau of Meteorology materialize.
Between April and June, it sees a more than a 60 percent chance of better-than-average rains across key production regions in Queensland, which should replenish pasture and dams.
Australian beef exports have had three record years, peaking last season at 1.223 million tonnes, but the government is predicting exports will fall five per cent in the 2015-16 season.
However, with wetter weather exports could fall more sharply, leaving the U.S. short of beef.
More than a third of Australian beef exports go to the U.S., while Japan is also a big buyer, according to the Australian Bureau of Agricultural and Resource Economics and Sciences.
El Nino risk
Driven by drought, the Australian herd is expected to fall to 24.2 million head of cattle at the end of June, the lowest in the 17-year records of the country’s commodity forecaster
Facing financial pressures, farmers will be forced to balance sales with rebuilding efforts, slowing the recovery.
In a bid to speed up restocking and improve the quality of cattle, some farmers are using in vitro fertilization. Australia has lagged behind market leader Brazil in bovine IVF, but farmers such as Michael Lyons, a cattle rancher in Queensland, are starting to use it more in a bid to improve fertility and breeding.
“(IVF) has the potential to make great genetic progress in ours and other herds in Northern Australian,” Lyons said.
Rebuilding the herd, however, could face setbacks, with at least a 70 per cent chance of an El Nino arriving as early as June. Should the weather pattern emerge, drier weather could again hit Queensland.
— Colin Packham is a commodities correspondent for Reuters in Sydney, Australia.