A drought in Australia, the world’s third-largest beef exporter, is fuelling a surge in exports as pastures dry up and farmers shrink their herds to curb losses.
“We can’t keep them,” said Will Abel Smith, the livestock marketing manager for S Kidman, which raises cattle on farms mostly in Queensland and South Australia covering 110 000km².
“We’re not in the position to feed cattle. If you try to bring hay in, it would break you.”
Queensland had its driest December since 1938, and demand for grain to replace parched grasslands sent sorghum futures up 71 percent since 2011 to a six-year high over the past week.
Kidman, founded in 1899 by Abel Smith’s great-grandfather, Sir Sidney Kidman, cut its herd by 11 percent to 200 000 head last year, sending more animals to abattoirs as cattle prices tumbled 35 percent from a peak in December 2011.
While the drought squeezes profit for farmers, the jump in cattle supplies is a boon to the Australian operations of Cargill and JBS, the world’s largest beef producer.
The government estimates that beef exports will rise 7 percent to 1.09 million tons in the 12 months to June, including a 74 percent increase to China and an 11 percent jump in sales to the US, where prices are the highest they have ever been.
The dry weather in Queensland, Australia’s largest cattle producer, emerged last year after two years of wetter-than-normal weather.
Almost 65 percent of the area is in drought after the lowest December rainfall in 75 years.
“We are already several weeks into the wet season and nothing much has happened,” said Blair Trewin, a climatologist at the Bureau of Meteorology in Melbourne. “While there is certainly a window of opportunity for significant rain, it is progressively narrowing.”
The loss of pastures normally used to feed cattle has forced farmers to buy more feed. Sorghum accounts for about 75 percent of the feed used in Queensland.
Sorghum futures on the Australian Securities Exchange in Sydney have risen 18 percent since the end of November. They reached A$346.50 (R3 332) a ton in the past week, the highest since 2007.
With costs rising, farmers have cut their herds. The number of cattle and calves slaughtered from July to October rose 16 percent from a year earlier, the biggest gain since 1997, according to Australian Bureau of Statistics data.
The Eastern Young Cattle Indicator of sales across Queensland, New South Wales and Victoria shows prices tumbled to A$2.785 a kilogram on Wednesday, the lowest since December 2009.
With more animals available, abattoirs will increase slaughter by 5.6 percent to 8.9 million head this year, the government estimates.
That will boost beef supplies and incentives for record exports.
Shipments to China would jump to a record high of 160 000 tons, while US purchases would reach a five-year high of 230 000 tons, the government said.
Demand for meat is increasing as world economic growth boosts incomes. Global beef imports will climb for a third consecutive year, gaining 4.3 percent to a record 7.49 million tons, according to the US Department of Agriculture. Consumption will expand 0.2 percent to 56.96 million tons, a six-year high.
Shipments to the US will benefit from the highest prices on record. Drought and high feed costs forced farmers there to cut their herds to the smallest since 1952, sending domestic beef output to a 20-year low this year, US Department of Agriculture data show.
Cattle futures on the Chicago Mercantile Exchange have jumped 16 percent since the end of June and touched $1.432 (R15.66) a pound on Wednesday, the highest since the contract started trading in 1964.
The retail price of ground beef in the US averaged $3.46 a pound in December, after climbing in September to $3.502, the highest since at least 1984. The wholesale price is up 19 percent this month to $2.4073 a pound on Wednesday, the highest since at least 2004.
Price gains may be tempered by increasing sales from Brazil, the world’s largest beef exporter. The country is set to supply 1.94 million tons of the meat to world markets this year, 7.8 percent more than last year and the most in seven years, the US government estimates.
Total shipments from Brazil, Argentina and Uruguay are expected to rise 17 percent this year, with the bulk of the increase coming from Brazil.
Australian exporters may have an advantage after the country’s currency plunged 14 percent against the US dollar last year.
The Australian dollar slipped to a three-year low of 87.57 US cents on Monday, compared with last year’s high of $1.0599 on January 10.
“Australia is not that competitive on the global meat market when the dollar is above parity,” said Troy Setter, the chief operating officer at Australian Agricultural, which has more than 600 000 head of cattle. The weaker currency “is really helpful” for exports, he said. – Phoebe Sedgman from Bloomberg