Farm Economics – Feedlot Industry Essay
Prior to the 1990s, feedlots were used either to combat drought or opportunistically by producers, gaining an advantage when the grain prices were low. In the last ten years the Japanese beef market has been liberalised subsequently there has been an increase in demand for imported grainfed beef. Resulting in a huge growth of the feedlot sector within Australia. Cattle numbers in these feed lots has risen from 80 000 in 1985 to 640 000 in 2001. Also there is currently 850 feed lots accredited by the ‘National Feedlot Accreditation Scheme’, combined to form a total capacity of 850 000 (MLA March 21 2002).
Supply and Demand Patterns Australia is the largest exporter of beef in the world. if you take into account feedlot meat and live export, 65% of total production is exported (MLA March 21 2002), Total numbers on feed reflect the supply and demand forces. Demand Forces The most significant is our international exchange rate, most importantly the US dollar. There are two main reasons for this. The first is that the domestic price is driven by the price we get in US$ for “grinding beef”. This is hamburger mince which comes from cull cows etc but which
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Although this has no direct correlation with the feedlot market this is what drives market forces and sets price on the domestic market. The second reason and more directly applicable to feedlot demand, is the price of our beef in Japan relative to the price of US feedlot beef. The US is our single biggest competitor. Demand forces in Japan are critical to the overall feedlot activity, as 60% of feedlot production goes to Japan. The Australian domestic market makes up for 36% of demand.
The feedlot supply of this market prior to 1991 was only as an opportunity during drought times. Consumers are now demanding a more consistent and predictable product. Independent of season grain feeding or at least finishing on grain will provide this. MLA (Meat & Livestock Australia) has developed MSA (Meat Standards Australia) certification that gives confidence to the consumer. Demand has been increasing regularly in the last 10 years. Actual figures available from 1995 (ALFA) Factors affecting demand by Japan in the last 10 years
The early 1990’s saw market problems caused by CFZ (Chorflurasurone) contamination of beef by cotton growing insecticide spray contamination. Japanese political influences liberalized the Japanese beef market in 1991. This allowed greater quantity of imports and so demand increased consistently until 1994. The reduction in 1996 was due to the market sensitivity in Japan. Food safety is a big issue and food pathogens were highly publicized as a cause of several food poisoning outbreaks. These pathogens found in salad products caused beef demand to decline. (Nichols)
From 1997 on the Australian dollar continued to weaken. Consequently MLA marketing vigor in Japan increased. The result was increasing demand as the Japanese recognised consistent quality and good price due to favorable trading terms because of the weak A$. Numbers on feed continue to increase until the end of 2001 despite diagnosis of BSE in a Japanese dairy and a subsequent confirmation in a second animal. Number of cattle on feed dropped 14 percent in the three months from the end of September to the end of December last year (MLA). The BSE crisis in Japan has been blamed for this.
Cattle on feed for the December quarter (traditionally the time of their highest levels) were 637,410 head, and turnoff was about 497,000 head, 17 percent less than during the September quarter (Mathers). Total beef consumption in Japan has reduced dramatically with the Australian exports down 15% in late 2001. Numbers on feed do not reflect this by Dec 2001 as they were already on feed when BSE was diagnosed. This confirms the sensitivity of the Japanese consumer to food safety despite it being in dairy animals and the fact that the Australian and US products are safe.
Market analysts are confident with the medium term, future demand, as the Australian product is seen as “clean”. This is very important as the Japanese market is very sensitive which reacts quickly and dramatically. Factors Affecting Supply Price being offered by the feedlot industry compared to grass restockers and local butcher demand has a large bearing on the availability of stock. When the domestic market is high, feedlot producers can not afford to purchase stock as their gross margin is significantly reduced.
This is basically driven by seasonal fluctuations within Australia although export demand usually overrides this. Cattle feed commodity supply also has a major impact on the availability of lot fed cattle. Primarily grain availability and price. When the price of grain is high, feed lots are more reluctant to purchase stock. The reason for this is that costs to grow the beef are increased thus being less profitable. Season and international price influence grain prices. Respective Elasticity Measures
The Australian dollar has risen to 53 cents per US dollar this week. The dollar has also strengthened against the Japanese yen, decreasing Australia’s export competitiveness in both the US and Japanese markets. Peter Weeks (MLA) says that the “3 per cent appreciation of the dollar over the last year has cost the beef industry alone approximately $200 million. ” US cattle inventory has reported a decline for the sixth consecutive year (USDA 24/3/02). Reports of 96. 7 million head of cattle suggest a 0. 6% reduction from 12 months prior (USDA 24/3/02).
Severe weather conditions encouraging producers to turn off cattle combined with attractive prices for yearling cattle are the reason for this. The USDA is now forecasting beef supplies to “fall by 2. 6% to 25. 5 billion pounds for 2002. ” Declining US beef availability and higher prices should ease competition to Australian beef in Asian markets therefore increasing the price. Price Movements In 1993/94 the Australian cattle herd of 25. 8 million head was similar to the 25. 2 million head of 1980/81. However, due to advances in beef feedlot technology beef production was 24 per cent higher than 1980/81.
Thus the cattle industry has greatly improved Australia’s international export growth to $2. 2 billion or 200 per cent in export earnings from beef over this 13 year period (from $1. 1 billion in 1980/81 to $3. 3 billion in 1993/94). This export growth accelerated in the early 1990s due to the industry’s successful penetration of Asian markets. With growth of $1. 5 billion or 90 per cent in beef export earnings over the 5 years to 1993/94 and $145 million or 240 per cent in live cattle export earnings over the 4 years to 1994/95.
(Mathers) Export growth has only been made possible by a more customer or end-user focus, more targeting of production to better meet customer needs and better communication and integration with the other stages of the beef production chain.
Meat and Livestock Australia Australian Lot Feeders Association ABC Rural 22/03/02 Department of Primary Industry – Queensland United States Department of Agriculture Acknowledgements Steve Mathers – Manager Caroona Feedlot Nigel Nichols BVSc – veterinary consultant to AMH