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DEMAND FOR AUSTRALIAN BEEF AND LAMB ON THE WORLD MARKET

22 Oct 2014 9:31 AM - Article by Ian Robinson

Interview with Connor Fitzgerald (Dunnett-Johnston)

Robinson Sewell Partners sat down with Connor Fitzgerald, a global meat trader from the well-established firm Dunnett-Johnston to discuss some of the complexities and landscape around the Supply and Demand equation for Australia’s beef and lamb.

 

Robinson Sewell Partners: Ian Robinson

As a global meat trader, what is the current supply and demand equation look like for Australian produced protein being exported to assist in meeting global demand?

Dunnett-Johnston: Connor Fitzgerald

Currently for red meat, demand is very good. You have the whole Asian middle class story, you have the recent emergence of China as a serious beef and sheep meat importer (4th largest for beef and 1st or 2nd largest for lamb) and you have North America experiencing historical beef shortages throughout their supply chain (thanks to a decade long drought in their major cattle producing areas). So the current short term outlook is very positive from the demand side. For Australia, our major supply competitors are South America, namely Uruguay, Brazil and Argentina, and of course New Zealand. However, fortunately, all of these countries are also experiencing downturns in their beef herd numbers and production capacity. On a general level, this will assist in keeping demand strong and prices high for Australian product. Further assisting returns to Australian producers is the recent decline in the AUD/USD which is enabling us to be more competitive with our pricing in USD terms whilst maintaining (and sometimes improving) our margins in AUD terms.  

 

Robinson Sewell Partners: Ian Robinson

How do you foresee this supply/demand imbalance playing out over the next 5 years and what opportunity is there for Australia to participate in this imbalance?

Dunnett-Johnston: Connor Fitzgerald

On the supply side, Australia has been experiencing very dry conditions for the last 2-3 years. This has led to above average turnoff and slaughter levels pretty much every month since the beginning of 2013. Obviously, there is not an endless bank of cattle to draw from so at some point in the future, I think early 2015, we will see a severe downturn in the supply of marketable cattle here in Australia. Australia’s total cattle numbers are now at their lowest point since the early 2000’s. What has been of particular concern during 2014 is the very high percentage of female cattle that have been processed. The effect of “killing your breeding stock” is to greatly prolong the rate and duration of cattle herd growth when positive seasonal conditions do eventually return. So depending on where you sit on the supply chain there will be challenges involved in this gradual return to more “normal” herd numbers.

 

 

Robinson Sewell Partners: Ian Robinson

If foreign investment capital is strategically placed in Australia’s agribusiness supply chain, how can you see this increasing Australia’s productivity and increasing farm gate prices and profitability?

Dunnett-Johnston: Connor Fitzgerald

(a)    Australia’s productivity. People may or may not already know but in the red meat industry it has been largely thanks to foreign capital investment that has driven improvements, innovation and productivity to date. Some of our largest beef processing companies are owned and funded by overseas entities. However, if Australia is to remain globally competitive then further research, development and technological innovation is critical. This is where the participation of foreign investment capital becomes extremely important.

(b)   Increasing farm gate prices and profitability. The bottom line is that if the red meat industry as a whole is competitive and cost-effective then everyone benefits. However, farm gate pricing for livestock is often disconnected to global demand for meat. Livestock prices today are still mostly influenced by Australia’s seasonal supply and demand factors. So, how can foreign capital investment improve farm gate pricing? It can be important to assisting Australian livestock enterprises undertake various operational improvements to ensure they continue to turnoff high quality, consistent livestock. Consistency of red meat product is one of the biggest issues facing the Australian red meat industry in this increasingly consumer focused environment – and this all starts at the farm gate.

 

Robinson Sewell Partners: Ian Robinson

Thank you Connor for your time and support.  The demand pull is certainly creating opportunities for Australian beef and lamb producers to invest in activities that will link their product to the export market in terms of capturing global prices and prospective investment for innovation and expansion.

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