There were six key developments in 2008 that have affected the Australian meat industry. The first major new development has been Brazilian beef packing companies - led by JBS-Friboi - pursuing take-over binges to acquire financial control of many other major packers in the US, Australia and Italy. Together with Marfrig and other Brazilian packers, JBS shared in buying-up other packers and meat processors in neighbouring countries within South America, including Uruguay and Argentina. The aim of this was to design new worldwide meat marketing strategies that would best allocate company resources. This was a new ball-game!

 

 

A second new development has been Russia again stepping boldly into world meat trade (like it did in early 1970s, during the Cold War, but this time it did so in apparent co-ordination with Brazilian JBS meat group) to buy large quantities of lean processing beef, and cheaper cuts of beef for its new era of affluent consumers. Instead of buying from traditional EU sources (now becoming depleted), Russia bought big quantities of beef from South America in 2007 and - starting in April-May 2008 - it also “bought big” from JBS and other packers in Australia, at CIF prices well above prevailing rates paid by US buyers (latter would soon pay 30c-lb more).

 

A third new development – arising from the one mentioned above – has been new circumstances forcing Australia to forgo its long-standing meat trade strategy of depending on the US market as the “long-term anchor” for buying its assured annual surpluses of lean beef through both good weather and periodic droughts. This strategy had been modified when feedlot development

during the 1990s onward caused steady growth of high-quality beef sales to Asia (making Japan a bigger market than US since turn of the century - with Korea following up fast). However, the US always remained the back-stop market for all other kinds of beef for processing, plus some new sales of high-quality chilled beef to that market.

 

In 2008, Australia’s beef exporters enjoyed unprecedented import demand from both Japan and Korea (especially for grain-fed beef) - to a point where over 90% of Australian beef exports were going to the “Big 3 Markets” - those two countries, plus the US - albeit with total beef trade to US in a declining trend. Total Australian beef shipments to the US during May 2008 dropped sharply to 17,282 mt, and were dramatically surpassed by May shipments to Russia/ CIS of 17,557 mt. This caused shockwaves in US beef trade. Sudden shortages of lean imported beef from Australia, New Zealand and Uruguay (the latter switched nearly all its beef exports to Russia-EU during 2008) caused US processors to raise their price bids for Australian 90CL cow beef from near 145c-lb fob at US port-of-entry to near 175c-lb by early June - and this high bidding didn’t look like easing for quite a while - in face of Russia’s competitive buying spree continuing.

 

The fourth new development – affecting both Australia and New Zealand seriously - was the declining value of the US dollar, and related rises in their respective currency values - which depletes actual price returns from all their export sales - concerning meat and all other

products. The 1973 upswing in the Australian dollar hurt the country’s meat export sales, all then priced in US currency denomination. It hurt again in the early 1980s, and is hurting again now in 2008.

 

At the time of writing this article, the Australian dollar was approaching an exchange value of US$0.95, which is up from a previous low of US$0.50 back in 2000, when terms of trade greatly favoured Australia’s exporters. However, the currency see-saw has now swung again, exacerbated by Australia reaping economic prosperity from mineral resources and a related export boom, which has kept Australian interest rates at high levels. In the meantime, currencies of various nations were following diverse patterns. This can be seen in a US meat trader’s statement of relative changes in steer prices in past 12 months within five beef export nations: USA +1.5%, Australia +17%, New Zealand +23.5%, Uruguay +34%, and Brazil +81% (currency is 16% of Brazil’s rise). Steer prices reached record levels in Uruguay and Brazil, with domestic demand adding pressure.

 

The fifth new development, which has had a worldwide effect, was the soaring prices of grains and soybeans. Here, ethanol policies utilising nearly one-third of its annual corn crop for fuel, instead of being food for humans and livestock, played a major role. In June, US corn prices were passing the US$7.00-bushel level (up 3.5 times from 3 years ago, and up 50% from one year ago) and soybeans were US$15.00-bushel (nearly doubled in one year) and sorghum price (for animal feed) was at US$12.35- bushel (up from US$7.50 a year earlier). These huge hikes for feed costs were devastating for all livestock producers. In Australia’s case, the number of cattle in feedlots dropped to 50% of normal capacity (now totalling over one million head) and exports of grain-fed beef to Japan and Korea were in decline, while a lot more cattle were put on grass for slower fattening (despite drought problems) with expected delays in future slaughter levels.