By the Blouin News Business staff

Australian exporters cash in on tight U.S. beef market

by in Asia-Pacific, U.S..

A chef cooks Australian beef in Tokyo, Japan, April 6, 2014. YOSHIKAZU TSUNO/AFP/Getty Images

A chef cooks Australian beef in Tokyo, Japan, April 6, 2014. YOSHIKAZU TSUNO/AFP/Getty Images

Australia’s Beef Week, held every three years, ended Saturday with a record turnout of 85,000. The number of international delegates tripled to more than 1,000 from 55 countries, especially China and Indonesia, since the last event in 2012.

Asia is a major growth market for Australian beef exporters, but so is the U.S., whose domestic beef industry is at its lowest herd level in decades. Hit by a multi-year drought in the Great Plains, America’s net beef production fell from 12 million tons in 2013 to almost 10 million tons this year. Consumer demand remains strong, so the tightening of supply has significantly raised retail beef prices — by 12% last year, and an estimated 5-6% this year, according to the U.S. Department of Agriculture (USDA).

Strong U.S. beef prices coupled with the strong dollar are drawing in more imports, especially from Australia, where a drought in part of the country is forcing producers to liquidate cattle herds. USDA import figures for January and February show that while global beef exports to the U.S. are up 56%, those from Australia, the largest supplier of beef to the U.S., are up 120% over last year,

Other countries are trying to cash in on the lucrative U.S. beef market too. Scotland’s cattle owners are feeling the pinch as beef prices in the U.K. have been inexplicably dropping, reaching 7% this year so far. So Scotland is hoping to export its beef to the U.S. for significantly higher prices, if it can get formal access to the American market (like Ireland did in 1998.) Mexico has also slightly upped its beef exports to the U.S. even though its own cattle supplies are very tight. This will lead its own herd level to fall, and its domestic beef to be pricier, too. But it is the cattle owners that decide whether or not to export, not Mexican consumers or politicians.

Gambling that a recent easing of the drought will persist, U.S. cattle owners are starting to expand their herds — a move that will likely take several years to have an impact on prices. (A cow has a nine-month gestation period, and then it takes another 1-2 years for it to grow to market weight.) In the meanwhile, herd expansion means more cows are being reserved for breeding, and accordingly, fewer are being slaughtered. This is keeping prices at or near record-highs in the U.S.

In the short-term, Australia can take advantage of the under-supplied U.S. market, but it cannot assume permanent drought conditions there. But other appealing options abound — a FTA concluded with Japan in January will halve the country’s tariff on imported Australian beef, and will net some $4.4 billion over 20 years to the Australian beef industry. Elsewhere in Asia, growing populations and increasing meat consumption make it obvious where Australia’s beef exporting future really awaits. Richard Rains, former CEO of Australia’s Sanger Meat Exports, said that the key will be branding, giving the example that “You don’t sell chocolate, you sell Cadbury’s.” Instead of marketing generic beef, he advocates building an overarching brand for distinctively Australian beef. “We are right in the heart of Asia, we are on the doorstep to supply them,” he said, adding “I think the future looks unbelievable.”