2010 Cattle and Beef Industry Projections

18th February, 2010Tim McRae, Economist, Meat & Livestock Australia

Beef industry status

Farm• Sale prices down 15% in 4 years (5% in 2009)• Incomes squeezed & less attractive than crops & prime lambs• Drought receding in many areas• But little evidence of desire to rebuild herds, except in far north

Processors/exporters• Export prices down 33% to US, 5% grassfed & 13% for grainfed fullsets to Japan

– partial recovery since November • Low co-product returns• Throughput down 3% in 2009 & 4.5% fall expected in 2010 • Some works closing & many working less shifts

Live exporters• Buoyant Indonesian demand• Exports up 9% in 2009 & further 4% expected in 2010

Retailers/foodservice operators• Foodservice tough in 2008 & until early 2009 but fast recovery since • Retail sales good • Consumers still trading down (frugal)

The two key Projections 2010 assumptions

• A$ to average 90US¢ - up 13.5%– Implies continued pressure on exporters, growth in product on

domestic market & limited scope for cattle price rises

• Better seasonal conditions than in 2009– Excellent start to the year, with excellent falls throughout NT,

Queensland, NSW and Victoria. Autumn still critical for southernregions.

– Implies better stock condition, demand for stores, an opportunity to end herd decline & better cow & young cattle prices

Outlook for the A$ in 2010A$/US¢ 2010 average

at 17th FebMar 10 Jun 10 Sep 10 Dec 10 Mar 11 Jun 11

St George 90.15 85 88 91 93 85 -Westpac - 86 85 90 95 93 -ANZ - 89 87 86 85 82 -Commbank - 87 88 87 85 82 -CME Futures - 89 88 88 87 86 85

The Sydney Morning Herald – 5th February 2010

“Most banks see the Australian dollar hovering around $US0.9000-$US0.9190 in the next 12 months with a chance of it hitting parity against the US dollar still intact”

“A Reuters poll of around 50 analysts showed a median forecast for the dollar at $US0.9190 in six months and $US0.9000 by year end”.

The dry decade 2000-2009

A dramatic turnaround in the season since November

Excellent falls during February…especially in Queensland and NSW

But 2010 promises an improvement

Rain has boosted prices…but only back to average levels

Source: MLA's NLRS

J A S O N D J F250

300

350

400A¢/kg cwt

2009-10 ave 98-03 ave 03-082008-09

Cattle and beef supply

Cattle herd to commence slow rise from 2011Beef production to fall 4% in 2010, before slowly rising

Source: ABS, MLA forecasts

00 01 02 03 04 05 06 07 08 09p 10f 11f 12f 13f 14fas at 30 June

1.3

1.5

1.7

1.9

2.1

2.3

2.5production (million head)

15

20

25

30herd (million head)

p = preliminaryf = forecasts

Cattle herd continues to move north

95 96 97 98 99 00 01census

02 03 04 05 06census

07 08 09p 10f 11f 12f 13f 14f

As at 30 June, as at 31 March up until 1999

10

12

14

16

18million head

Qld, NT & WA NSW, Vic, SA & Tas

f = forecastsp = preliminary

forecast

Australian adult cattle slaughter down 4.5%

Source: ABS, MLA forecasts f = forecast90 92 94 96 98 00 02 04 06 08 10f 12f 14f

5

6

7

8

9 million head

Australian cattle turnoff in 2010

Source: ABS, MLA forecasts

90 92 94 96 98 00 02 04 06 08 10f 12f 14f0

1

2

3

4

5million head

male cattle female cattle live export

f = forecasts

forecast

Beef and cattle demand

Economic growth for key countries

Source: International Monetary Fund, World Economic Update - Jan 2010 f = forecast

World US EU Japan UK Russia China India ASEAN-5

0

5

10

15

-5

-10

year-on-year % change

2009 2010f 2011f

A$ against US$ and Japanese yen

Source: RBA

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 20100.4

0.5

0.6

0.7

0.8

0.9

1

1.1A$/US$

40

50

60

70

80

90

100

110A$/Yen

A$/US$ A$/Yen

Beef exports and percentage of production

Source: DAFF, ABS, MLA forecasts90 92 94 96 98 00 02 04 06 08 10f 12f 14f

0

200

400

600

800

1,000

1,200'000 tonnes swt

50

55

60

65

70% of production

exports % production

f = forecasts

Australian beef exports to Japan

Source: DAFF volume, ABS value, MLA forecasts

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10f0

100

200

300

400

500'000 tonnes swt

0

0.5

1

1.5

2

2.5A$ billion

exports value

f = forecast

Australian beef exports to Korea

Source: DAFF volume, ABS value, MLA forecasts

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10f0

20

40

60

80

100

120

140

160'000 tonnes swt

0

200

400

600

800

1000A$ million

exports value

f = forecast

Korean beef imports

Source: KOTIS, MLA estimates90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10f

0

50

100

150

200

250

300

350'000 tonnes swt

Australia US other

f = forecast

Australian beef exports to US

Source: DAFF volume, ABS value, MLA forecasts90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10f

0

100

200

300

400

500'000 tonnes swt

0

0.5

1

1.5

2A$ billion

exports value

f = forecast

US annual Choice retail beef demand index

Source: James Mintert, Purdue University

81 83 85 87 89 91 93 95 97 99 01 03 05 07 0940

50

60

70

80

90

100index (1980=100)

US cattle herd

Source: USDA, CattleFax

80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10

As at 1 January

80

90

100

110

120million head

Australian beef exports to Indonesia

92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10f0

10

20

30

40

50

60'000 tonnes swt

0

50

100

150

200A$ million

volume value

Source: DAFF volume, ABS value, MLA f = forecast

Australian beef exports to the EU

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10f0

2

4

6

8

10

12

14'000 tonnes swt

0

20

40

60

80

100

120

140

160A$ million

volume value

Source: DAFF volume, MLA f = forecast

Australian beef exports to Middle East

95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10f0

5

10

15

20'000 tonnes swt

Source: DAFF, MLA f = forecast

Beef consumption and retail price

Source: MLA from ABS production and DAFF trade data, ABARE

95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10f 11f 12f 13f 14f500

550

600

650

700

750

800'000 tonnes cwt

600

800

1,000

1,200

1,400

1,600

1,800A¢/kg

beef retail price beef consumption

f = forecasts

Consumer expenditure on beef

Source: MLA estimates from ABS production & trade data94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09

0

1

2

3

4

5

6

7

8A$ billion

Australian live cattle exports and value

Source: ABS, MLA forecasts

90 92 94 96 98 00 02 04 06 08 10f 12f 14f0

200

400

600

800

1,000

1,200'000 head

0

100

200

300

400

500

600

700$A million

numbers value

f = forecasts

Live cattle exports and value to Indonesia

Source: ABS, MLA forecasts

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10f0

200

400

600

800

1,000'000 head

0

100

200

300

400

500$A million

numbers value

f = forecasts

Live cattle exports to other destinations

Source: ABS, MLA forecasts90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10f

0

100

200

300

400

500

600

700

800'000 head

Philippines Malaysia China Japan Middle East & Africa Other

f = forecast

Summary

“There are tentative signs for a sustained recovery in beef and cattleprices for 2010, with better seasonal conditions and export demand, but the high A$ remains a major constraint upon the industry”

2011 and beyond:• Beef profitability to recover, underpinned by lower A$ and higher global beef demand

• Australian cattle herd to reach 28 million head by 2014

• Global economic recovery to gather pace, fuelling beef demand – exports to exceed 1 million tonnes swt by 2014

• Live cattle demand to expand, fuelling herd expansion in the north

Questions?

The tale of two meats: 2009

• Cattle price -5% +13%

• Export value -$529m +$162m-12% +18%

• Domestic value +$173m +$208m+3% +10%

Beef Lamb

Beef: what’s gone wrong?

• Global credit crisis• Global recession

• Fall in Australian consumer spending

• A$ rise – all the cost born by exporters & producers

• US return to Japan & Korea• Higher US cow beef supply• Russia fall lifts competition from

South America elsewhere

• Fall in hide & other co-product value

• Supply fall

• Little impact of credit crisis• Market spread & ‘treat’ status protects

from recession• Australian’s “love affair” with lamb

continues to boost demand • A$ rise largely passed on to customers

due to global shortage • Big fall in competition from NZ & further

falls in US supply

• Less severe fall in skin & other co-product value

• Supply rises

Lamb: what’s gone right?