Australian Beef Industry Production and Sale of Beef Cattle Dec 2004
AUSTRALIAN
Beef
04.3 December 2004
AUSTRALIAN BEEF INDUSTRY PRODUCTION AND SALE OF BEEF CATTLE Australian beef producers have adjusted their production and sale practices over the past decade in response to changes in the structure of beef cattle production in Australia and to changing markets. In particular, many producers have switched to cow–calf operations, producing young feeder cattle for feedlots or the live export trade and reducing production of grass fed steers and bullocks. Auction remains the most popular method of sale for beef cattle, accounting for over 45 per cent of sales. Auctions can be used to sell a wide variety of cattle and the interaction of multiple buyers and sellers provides a sound mechanism for true price discovery. An increasing proportion of beef cattle are being sold ‘over the hooks’, a sale method that ensures that producers receive clear market and price signals, reduces damage caused by livestock handling and provides feedback enabling producers to modify their production system. However, the price discovery mechanism for over the hooks sales is more limited, with sellers often having a limited choice of buyers.
Beef cattle production Australia exports over 60 per cent of its beef and veal production, with the major export markets being in Asia and the Pacific, particularly the United States and Japan. Changes in international markets, including concerns over animal health and food safety, can have a significant impact on the Australian beef industry. The domestic market is the largest single market for Australian beef and domestic demand for beef has strengthened in recent years in response to growth in consumer disposable incomes, better beef quality and marketing and a generally more positive nutritional and dietary message from the press and medical professionals. However, opportunities for significant growth in Australian domestic demand are limited and increases in production of beef and veal over the past decade have mainly been exported. Widespread drought in 2002-03 resulted in an increase in cattle slaughter and a reduction of 5 per cent in the Australian cattle herd
A
Cattle numbers Australia
25 20 15 10 5 million 1980 -81
1986 -87
1992 -93
1998 -99
2004 -05
abare
B
Australian cattle slaughter
10
Cattle and calves slaughtered
(figure A). In the period since, producer efforts to rebuild herds have limited beef production.
Average weight 230
8
220
6
210
4
200 190
2
kg/head
million
carcass weight
1992 -93
C
1995 -96
1998 -99
2001 -02
2004 -05
The 2002-03 drought resulted in average slaughter weights falling (figure B). Over the past fifteen years, however, average slaughter weights have trended upward at a rate of 0.7 per cent a year. Part of this increase in average slaughter weight can be attributed to the rise of lotfeeding and increased grain finishing of cattle.
Cattle on Australian feedlots Quarterly, ended September 2004 Domestic
700
Export
600
Feedlot sector
500
The number of beef cattle in feedlots fell during 2002-03 (figure C) in response to a reduced availability of stock and tighter margins caused by the sharp increase in feed grain prices and lower demand from the Japanese market.
400 300 200 100 ’000 1991
D
Prior to 2002-03, beef cattle numbers had trended upwards for a period of twenty years. In the decade to 2002-03, good seasonal conditions, high prices and relatively strong live cattle demand resulted in a steady growth in the size of the cattle herd in northern Australia (Queensland, the Northern Territory and the Pilbara and Kimberley region of Western Australia). In southern Australia, drier seasonal conditions in Victoria in the late 1990s and greater competition for land from other activities, including cropping, restricted growth in the southern herd. Consequently, more of the growth in Australia’s cattle herd occurred on larger cattle properties in northern Australia.
1994
1997
2000
2003
Australian cattle turnoff Live cattle exports Fed cattle slaughter
80 60
Female slaughter
40 Calf slaughter
However, the number of beef cattle in feedlots destined for the domestic market increased to just over 50 per cent in 2002-03. Domestic demand for grain finished cattle, particularly from supermarkets, has increased strongly over the past decade. The ability of feedlots to supply a consistent quality product all year round regardless of climatic conditions was a significant factor in retaining the support of domestic consumers during the 2002-03 drought and maintaining demand for beef. The cattle lotfeeding sector has continued to grow in importance in Australia as producers seek to increase the quality and value of their product. Turnoff from the sector accounted for 27 per cent of total Australian adult cattle slaughter in 2003-04, with grain fed beef making up more than 30 per cent of total beef production — a more than doubling of grain fed beef production in the past decade.
20
Changes in cattle turnoff
Grass fed male slaughter % 1991 -92
1994 -95
1997 -98
2000 -01
2003 -04
The rise in fed cattle turnoff is one manifestation of the structural change that has been occurring in the Australian beef industry. Growth in the australian beef industry 04.3
2
live cattle export sector is another. With more cattle being either finished on grain in domestic feedlots or exported live to be fattened in feedlots overseas, producers have been switching over to cow–calf operations, producing young feeder cattle for feedlots or the live export trade and reducing production of grass fed steers and bullocks. Between 1990-91 and 2003-04 the slaughter of grass fed steers and bullocks fell from 64 per cent of total cattle slaughter to 37 per cent (figure D).
Live cattle exports Since the early 1990s, Australia’s live cattle trade has grown substantially. Initially, the trade was dominated by the Northern Territory, which contributed over 50 per cent of live cattle exports between 1992 and 1994. Since then, the overall industry has increased and the Northern Territory’s proportional contribution has declined to around 30 per cent of Australia’s live cattle exports (figure E). Properties in the upper Northern Territory are heavily reliant on the live cattle export trade. Each year from 2000-01 to 2003-04, 90 per cent of Northern Territory properties sold cattle for live export. Live export sales accounted for more than 70 per cent of cattle sales and more than 50 per cent of property receipts on average. Properties in the Kimberley region of Western Australia were similarly reliant. In north western Queensland, a third of properties sold live export cattle in each year from 2000-01 to 2003-04 and around 20 per cent of property receipts were derived from live export sales. Australia’s live cattle trade mainly caters to the south east Asian and Middle East markets. While there has been considerable volatility, Indonesia and the Philippines are the largest live cattle export markets for Australia.
E 800 600
Live cattle exports, by state Other states Queensland Western Australia Northern Territory
400 200 ’000
1991 1994 While cattle for live export are sourced mainly from northern Australia, a small number are also sourced from southern states. Cattle from south-ern states have typically been bos taurus breeds exported to north African markets. Northern Australian live cattle exports are principally bos indicus breeds with a high brahman content owing to their ability to cope well with tropical conditions in south east Asian countries.
A specialised industry has developed in northern Australia to supply cattle for the live trade. Escalation of south east Asian demand for live feeder cattle in the early and mid 1990s influenced the breeding and management systems of many northern properties, resulting in a significant increase in brahman type cattle a higher proportion of breeders turning cattle off at a much younger 2–3 years of age. Australia exported around 577 000 live cattle in 2003-04, a decline of 40 per cent from the previous year. In value terms, live cattle exports fell by even more with the higher value of the Australian dollar in 2003-04 and strong competition from lower priced buffalo meat in south east Asian markets major contributing factors.
australian beef industry 04.3
3
1997
2000
2003
Trends in selling methods for beef cattle Cattle producers use different methods to market their cattle and calves in response to changing markets and other factors. To monitor these changes, ABARE collects data each year on producers’ methods of turning off cattle and calves as part of the Australian agricultural and grazing industries survey (AAGIS). At the national level, auction sales have traditionally been the dominant selling method used by beef cattle producers. Auction sales are most favored by producers with smaller herd sizes selling in small lot sizes. Generally, these producers are located in more closely settled areas where distances to saleyards and freight costs are relatively small. Typically, these areas also produce and trade a range of cattle types — store, finished and stud — with all able to be sold via auction. Producers with larger herds are more likely to sell over the hooks, over the scales live weight (excluding auction) or in the paddock because they are able to generate larger sale numbers. The beef industry developed more ‘market focused’ production systems during the 1990s in response to increased competition between meat industries and in international markets. Processors and manufacturers now place more emphasis on purchasing products that meet their precise specifications. This approach favors ‘over the hooks’ sales where the sale price varies in accordance with how well animals meet specifications, and the buyer can more accurately determine whether the product meets specifications such as weight and fat cover. If product falls outside these specifications, the price is discounted accordingly. This approach provides direct feedback to
1
F
Sale methods for beef cattle Australia
70 60 Auction
50 40 Over the hooks
30 20
Paddock
10 % of turnoff
Over the scales – excluding auction 1991 -92
1994 -95
1997 -98
2000 -01
2003 -04
Methods of selling beef cattle a Share of total turnoff
1998-99
1999-2000
2000-01
2001-02
2002-03
2003-04
%
%
%
%
%
%
New South wales Paddock Over the hooks Auction Over the scales – excl. auction Other Transfer off-farm
8.3 24.0 59.1 6.4 1.6 0.6
(36) (28) (12) (80) (90) (70)
7.2 (26) 19.2 (27) 71.9 (7) 1.6 (49) 0 – 0.2 –
8.3 21.4 65.3 2.5 1.0 1.5
(37) (24) (10) (44) (464) (85)
8.7 16.4 67.7 6.7 0 0.5
6.0 16.4 71.6 4.3 0.9 0.7
(32) (23) (7) (36) – (166)
(31) (35) (9) (48) (118) (64)
8.3 31.5 55.5 4.1 0 0.6
(36) (17) (13) (55) – (136)
continued…
australian beef industry 04.3
4
1
Methods of selling beef cattle a continued Share of total turnoff
1998-99
1999-2000
%
2000-01
%
2001-02
%
2002-03
%
2003-04
%
%
Victoria Paddock Over the hooks Auction Over the scales – excl. auction Other Transfer off-farm
5.5 14.6 74.6 2.3 0 2.9
(37) (31) (6) (87) –
9.9 (37) 10.8 (45) 78.1 (8) 1.2 (53) 0 – 0 –
11.7 14.4 72.0 1.5 0 0.4
(47) (42) (10) (46) –
(91)
8.9 (26) 11.9 (53) 75.0 (9) 4.2 (44) 0 – 0 –
(55) (29) (12) (68) (62)
(9)
13.5 18.8 66.1 0.5 1.0 0
(34) (40) (13) (64) –
–
22.7 11.3 62.2 3.7 0 0.1
6.5 51.8 23.3 4.0 0 14.3
(24) (9) (15) (61) – (29)
15.1 33.1 31.3 5.6 0.2 14.7
(25) (15) (14) (44) (142) (42)
14.5 35.3 37.4 4.2 0.2 8.5
(27) (12) (12) (32) (70) (26)
12.2 42.9 24.1 7.0 0.3 13.5
(27) (9) (12) (31) (94) (25)
4.0 26.0 42.9 10.1 1.4 15.7
(31) (15) (17) (22) (73) (25)
7.0 41.5 32.5 1.3 0 17.7
(31) (10) (11) (50) – (18)
9.1 19.9 56.4 11.5 2.1 1.0
(37) (20) (14) (53) (88)
19.5 23.6 53.6 2.3 0 1.0
(23) (22) (13) (44) –
6.3 26.0 51.4 3.3 0 13.0
(49) (23) (16) (119) –
16.6 0.8 51.4 30.8 0 0.4
(59) (113) (28) (32) –
3.9 30.4 61.0 1.4 0 3.3
(24) (24) (12) (39) –
2.2 42.8 52.7 0.7 0 1.5
(75) (57) (43) (68) –
15.2 12.1 50.4 18.5 0 3.8
(46) (35) (24) (51) –
(58) (53) (26) (34) – (369)
10.3 7.8 38.4 40.5 0 3.0
(83) (62) (26) (36) –
(153)
6.9 15.4 44.1 32.9 0 0.7
(115) (97) (41) (16) –
(379)
0.4 4.2 23.6 71.8 0 0
(82) (42) (19) (36) (78) (39)
12.2 21.0 50.4 14.7 0 1.7
(27) (29) (11) (25) –
–
7.6 9.9 54.4 24.4 0.5 3.2
23.2 25.7 46.0 3.8 1.1 0.2
(50) (33) (18) (99) (69) (70)
8.2 41.4 49.3 0.7 0.3 0
(47) (22) (18) (163) (96) –
23.5 33.0 35.8 6.2 1.4 0
(46) (25) (28) (110) (61) –
5.3 42.7 41.9 10.1 0 0
(31) (79) (89) (83) – –
5.8 36.8 49.5 6.2 1.7 0
(75) (23) (18) (95) (68) –
11.6 (83) 61.6 (17) 26.8 (36) 0 – 0 – 0 –
8.6 (29) 11.2 (27) 19.7 (24) 25.8 (21) 0.3 (105) 34.5 (16)
8.5 11.4 14.2 42.6 0 23.4
(48) (33) (28) (30) – (34)
6.4 8.7 11.0 39.7 0.6 33.6
(26) (21) (24) (16) (27) (16)
7.8 5.6 12.6 46.9 0 27.2
(48) (40) (29) (30) – (30)
4.7 28.7 7.1 13.3 0.3 45.9
(89) (17) (50) (56) (90) (13)
7.6 20.2 9.7 30.8 0 31.7
(64)
Queensland Paddock Over the hooks Auction Over the scales – excl. auction Other Transfer off-farm
South Australia Paddock Over the hooks Auction Over the scales – excl. auction Other Transfer off-farm
(69)
(45)
(63)
(91)
(89)
(61)
Western Australia Paddock Over the hooks Auction Over the scales – excl. auction Other Transfer off-farm
(44)
Tasmania Paddock Over the hooks Auction Over the scales – excl. auction Other Transfer off-farm
Northern Territory Paddock Over the hooks Auction Over the scales – excl. auction Other Transfer off-farm
a All broadacre farms with more than 50 head of beef cattle. Excludes major feedlots. Note: Figures in parentheses are standard errors, expressed as percentages of the estimates.
australian beef industry 04.3
5
(61) (28) (41) (38) – (22)
producers and may provide the incentive for producers to modify their production systems to meet buyers’ requirements. Direct methods of sale such as over the hooks also reduce carcass damage and loss of meat quality caused by additional handling and stress involved in saleyard and auction sales.
Longer term trends
G
Turnoff methods for beef cattle, by state
New South Wales 70 60 50 40 30 20 10 % 1998 -99
1999 -2000
2000 -01
2001 -02
2002 -03
2003 -04
Victoria 70 60 50 40 30 20 10 % 1998 -99
1999 -2000
2000 -01
2001 -02
2002 -03
2003 -04
Queensland Paddock Over the hooks Auction
70 60 50 40
Over scales – excl auction Other Transfer off-farm
30 20 10 % 1998 -99
1999 -2000
2000 -01
2001 -02
2002 -03
2003 -04
Since 1990-91, the proportion of beef cattle sold at auction has fallen steadily, from 65 per cent of cattle sales to a low of 44 per cent in 2001-02 (figure F). Drought in 2002-03 resulted in high turnoff of unfinished cattle, particularly in Queensland, New South Wales and Western Australia, resulting in the proportion of cattle being auctioned increasing strongly in these states (figure G, table 1). Nationally, the proportion of beef cattle sold by auction rose to 57 per cent before falling back to 44 per cent in 2003-04 as turnoff reduced. In contrast, the proportion of beef cattle sold over the hooks increased from 21 per cent in 1990-91 to a high of 36 per cent in 199899, falling back to 27 per cent between 1999-2000 and 2000-01 then falling to 24 per cent in 2002-03 as drought forced the turnoff of a high proportion of unfinished cattle. However, with less forced turnoff in 2003-04 and a reduction in live cattle exports from northern Australia, preliminary estimates indicate that over the hooks sales rebounded strongly to almost 40 per cent of sales — only 4 percentage points below auction sales. Over the same period, development of the live export market and commercial feedlots resulted in a significant increase in the proportion of cattle sold over the scales (excluding auction). In 1990-91, only 2 per cent of all cattle sold by specialist beef cattle producers were sold over the scales. By 2001-02 this share had risen to almost 13 per cent (figure F). The proportion of over the scales sales fell with the onset of drought in 2002-03 and a downturn in live cattle exports in 2003-04. The switch between the auction system to more direct selling methods, such as over the hooks, over the scales and paddock sales, is to some extent driven by changes in the distribution of beef cattle, herd sizes and markets targeted. In particular, increasing cattle turnoff from northern Australia has contributed to the growth in the proportion of beef cattle sold over the hooks and scales. Historically, auction sales have been highest in Victoria and New South Wales, states with a high proportion of relatively small herds. However, over the period 2001-02 to 2003-04 the proportion of cattle sold by direct methods in these states, including both paddock and over the hooks, has increased significantly, particularly in Victoria (figure G, table 1). australian beef industry 04.3
6
Selling methods of better performing farms When farms are compared on the basis of their financial performance (ranking farms on the basis of their rate of return, excluding capital appreciation), considerable differences in the selling methods are apparent for the top and bottom performing farms (table 2). In the 2000-01 to 2002-03 period, the top 20 per cent of producers sold an average of 744 cattle, of which 47 per cent were sold over the hooks, 20 per cent via auctions and 16 per cent over scales. The bottom 20 per cent of specialist producers sold an average of 167 cattle, with heavy reliance on auctions (table 2). Better performing farms sell larger numbers of cattle than poorer performing farms and so might be expected to adopt different selling methods.
G
Turnoff methods for beef cattle, by state
South Australia 70 60 50 40 30 20 10 % 1998 -99
1999 -2000
2000 -01
2001 -02
2002 -03
2003 -04
1999 -2000
2000 -01
2001 -02
2002 -03
2003 -04
1999 -2000
2000 -01
2001 -02
2002 -03
2003 -04
Western Australia 70
Box 1: Selling methods
60
Cattle may be sold in Australia as stud, store or finished stock. A variety of different selling methods are used, depending on the type of stock and market outlet for the stock. Paddock sales: Buyers inspect stock on the producer’s property, price is generally negotiated on a dollars per head basis and ownership is generally transferred at the farm gate. This method is often favored for producer to producer sales of store or breeding stock. Over the hooks: Price is negotiated on a cents per kilogram carcass weight basis, with ownership usually transferred at the point of slaughter. Producers receive clear market and price signals relating to carcass quality and are provided with carcass feedback. The principal drawback of over the hook selling is the lack of a price discovery mechanism. Auction sales: Stock is sold by open auction on either a dollars per head basis or, if stock are weighed, on a cents per kilogram live weight basis. Auction sales are usually conducted off farm at saleyards, although they may be held on farm. Ownership is generally transferred at the point of sale. Auction selling involves additional costs and stock handling and can mask the quality–price relationship. However, the interaction of multiple buyers and sellers can allow for true price discovery.
50 40 30 20 10 % 1998 -99
Tasmania 70 60 50 40 30 20 10 % 1998 -99
Northern Territory
Over the scales – excluding auction: This is the most common method of sale for cattle destined for live export. Buyers inspect stock on the producer’s property, price is generally negotiated on a cents per kilogram live weight basis and ownership is transferred either at the farm gate or at the port.
70
Other: Includes AuctionsPlus (formerly CALM), electronic sale by description.
20
Paddock Over the hooks Auction
60 50 40
Over scales – excl auction Other Transfer off-farm
30 10 % 1998 -99
australian beef industry 04.3
7
1999 -2000
2000 -01
2001 -02
2002 -03
2003 -04
Produced by ABARE for:
Further information contact: MLA’s Economic Planning and Market Services Unit on 02 9463 9163 or ABARE Survey Analysis Section on 02 6272 2363. www.mla.com.au
2
Method of selling beef cattle, 2000-01 to 2002-03 Bottom 20% a
Number sold Proportion sold – – – – –
in the paddock over the hook over the scales auctions other
Top 20% a
Average
no.
167
(12)
744
(8)
337
(11)
% % % % %
16 25 11 49 0
(26)
13 47 16 20 4
(20)
9 25 9 47 1
(16)
(20) (25) (12)
(7) (15) (12) (77)
However, in all mainland states including those with a high proportion of small herds such as Victoria, the top 20 per cent of producers consistently sold fewer cattle via the auction system and made greater use of over the hooks, paddock and scales selling methods.
(14) (15) (8) (57)
a Farms ranked by rate of return, excluding capital appreciation. All broadacre farms with more than 50 head of beef cattle. Note: Figures in parentheses are standard errors, expressed as percentages of the estimates.
australian beef industry 04.3
8
Beef
04.3 December 2004
AUSTRALIAN BEEF INDUSTRY PRODUCTION AND SALE OF BEEF CATTLE Australian beef producers have adjusted their production and sale practices over the past decade in response to changes in the structure of beef cattle production in Australia and to changing markets. In particular, many producers have switched to cow–calf operations, producing young feeder cattle for feedlots or the live export trade and reducing production of grass fed steers and bullocks. Auction remains the most popular method of sale for beef cattle, accounting for over 45 per cent of sales. Auctions can be used to sell a wide variety of cattle and the interaction of multiple buyers and sellers provides a sound mechanism for true price discovery. An increasing proportion of beef cattle are being sold ‘over the hooks’, a sale method that ensures that producers receive clear market and price signals, reduces damage caused by livestock handling and provides feedback enabling producers to modify their production system. However, the price discovery mechanism for over the hooks sales is more limited, with sellers often having a limited choice of buyers.
Beef cattle production Australia exports over 60 per cent of its beef and veal production, with the major export markets being in Asia and the Pacific, particularly the United States and Japan. Changes in international markets, including concerns over animal health and food safety, can have a significant impact on the Australian beef industry. The domestic market is the largest single market for Australian beef and domestic demand for beef has strengthened in recent years in response to growth in consumer disposable incomes, better beef quality and marketing and a generally more positive nutritional and dietary message from the press and medical professionals. However, opportunities for significant growth in Australian domestic demand are limited and increases in production of beef and veal over the past decade have mainly been exported. Widespread drought in 2002-03 resulted in an increase in cattle slaughter and a reduction of 5 per cent in the Australian cattle herd
A
Cattle numbers Australia
25 20 15 10 5 million 1980 -81
1986 -87
1992 -93
1998 -99
2004 -05
abare
B
Australian cattle slaughter
10
Cattle and calves slaughtered
(figure A). In the period since, producer efforts to rebuild herds have limited beef production.
Average weight 230
8
220
6
210
4
200 190
2
kg/head
million
carcass weight
1992 -93
C
1995 -96
1998 -99
2001 -02
2004 -05
The 2002-03 drought resulted in average slaughter weights falling (figure B). Over the past fifteen years, however, average slaughter weights have trended upward at a rate of 0.7 per cent a year. Part of this increase in average slaughter weight can be attributed to the rise of lotfeeding and increased grain finishing of cattle.
Cattle on Australian feedlots Quarterly, ended September 2004 Domestic
700
Export
600
Feedlot sector
500
The number of beef cattle in feedlots fell during 2002-03 (figure C) in response to a reduced availability of stock and tighter margins caused by the sharp increase in feed grain prices and lower demand from the Japanese market.
400 300 200 100 ’000 1991
D
Prior to 2002-03, beef cattle numbers had trended upwards for a period of twenty years. In the decade to 2002-03, good seasonal conditions, high prices and relatively strong live cattle demand resulted in a steady growth in the size of the cattle herd in northern Australia (Queensland, the Northern Territory and the Pilbara and Kimberley region of Western Australia). In southern Australia, drier seasonal conditions in Victoria in the late 1990s and greater competition for land from other activities, including cropping, restricted growth in the southern herd. Consequently, more of the growth in Australia’s cattle herd occurred on larger cattle properties in northern Australia.
1994
1997
2000
2003
Australian cattle turnoff Live cattle exports Fed cattle slaughter
80 60
Female slaughter
40 Calf slaughter
However, the number of beef cattle in feedlots destined for the domestic market increased to just over 50 per cent in 2002-03. Domestic demand for grain finished cattle, particularly from supermarkets, has increased strongly over the past decade. The ability of feedlots to supply a consistent quality product all year round regardless of climatic conditions was a significant factor in retaining the support of domestic consumers during the 2002-03 drought and maintaining demand for beef. The cattle lotfeeding sector has continued to grow in importance in Australia as producers seek to increase the quality and value of their product. Turnoff from the sector accounted for 27 per cent of total Australian adult cattle slaughter in 2003-04, with grain fed beef making up more than 30 per cent of total beef production — a more than doubling of grain fed beef production in the past decade.
20
Changes in cattle turnoff
Grass fed male slaughter % 1991 -92
1994 -95
1997 -98
2000 -01
2003 -04
The rise in fed cattle turnoff is one manifestation of the structural change that has been occurring in the Australian beef industry. Growth in the australian beef industry 04.3
2
live cattle export sector is another. With more cattle being either finished on grain in domestic feedlots or exported live to be fattened in feedlots overseas, producers have been switching over to cow–calf operations, producing young feeder cattle for feedlots or the live export trade and reducing production of grass fed steers and bullocks. Between 1990-91 and 2003-04 the slaughter of grass fed steers and bullocks fell from 64 per cent of total cattle slaughter to 37 per cent (figure D).
Live cattle exports Since the early 1990s, Australia’s live cattle trade has grown substantially. Initially, the trade was dominated by the Northern Territory, which contributed over 50 per cent of live cattle exports between 1992 and 1994. Since then, the overall industry has increased and the Northern Territory’s proportional contribution has declined to around 30 per cent of Australia’s live cattle exports (figure E). Properties in the upper Northern Territory are heavily reliant on the live cattle export trade. Each year from 2000-01 to 2003-04, 90 per cent of Northern Territory properties sold cattle for live export. Live export sales accounted for more than 70 per cent of cattle sales and more than 50 per cent of property receipts on average. Properties in the Kimberley region of Western Australia were similarly reliant. In north western Queensland, a third of properties sold live export cattle in each year from 2000-01 to 2003-04 and around 20 per cent of property receipts were derived from live export sales. Australia’s live cattle trade mainly caters to the south east Asian and Middle East markets. While there has been considerable volatility, Indonesia and the Philippines are the largest live cattle export markets for Australia.
E 800 600
Live cattle exports, by state Other states Queensland Western Australia Northern Territory
400 200 ’000
1991 1994 While cattle for live export are sourced mainly from northern Australia, a small number are also sourced from southern states. Cattle from south-ern states have typically been bos taurus breeds exported to north African markets. Northern Australian live cattle exports are principally bos indicus breeds with a high brahman content owing to their ability to cope well with tropical conditions in south east Asian countries.
A specialised industry has developed in northern Australia to supply cattle for the live trade. Escalation of south east Asian demand for live feeder cattle in the early and mid 1990s influenced the breeding and management systems of many northern properties, resulting in a significant increase in brahman type cattle a higher proportion of breeders turning cattle off at a much younger 2–3 years of age. Australia exported around 577 000 live cattle in 2003-04, a decline of 40 per cent from the previous year. In value terms, live cattle exports fell by even more with the higher value of the Australian dollar in 2003-04 and strong competition from lower priced buffalo meat in south east Asian markets major contributing factors.
australian beef industry 04.3
3
1997
2000
2003
Trends in selling methods for beef cattle Cattle producers use different methods to market their cattle and calves in response to changing markets and other factors. To monitor these changes, ABARE collects data each year on producers’ methods of turning off cattle and calves as part of the Australian agricultural and grazing industries survey (AAGIS). At the national level, auction sales have traditionally been the dominant selling method used by beef cattle producers. Auction sales are most favored by producers with smaller herd sizes selling in small lot sizes. Generally, these producers are located in more closely settled areas where distances to saleyards and freight costs are relatively small. Typically, these areas also produce and trade a range of cattle types — store, finished and stud — with all able to be sold via auction. Producers with larger herds are more likely to sell over the hooks, over the scales live weight (excluding auction) or in the paddock because they are able to generate larger sale numbers. The beef industry developed more ‘market focused’ production systems during the 1990s in response to increased competition between meat industries and in international markets. Processors and manufacturers now place more emphasis on purchasing products that meet their precise specifications. This approach favors ‘over the hooks’ sales where the sale price varies in accordance with how well animals meet specifications, and the buyer can more accurately determine whether the product meets specifications such as weight and fat cover. If product falls outside these specifications, the price is discounted accordingly. This approach provides direct feedback to
1
F
Sale methods for beef cattle Australia
70 60 Auction
50 40 Over the hooks
30 20
Paddock
10 % of turnoff
Over the scales – excluding auction 1991 -92
1994 -95
1997 -98
2000 -01
2003 -04
Methods of selling beef cattle a Share of total turnoff
1998-99
1999-2000
2000-01
2001-02
2002-03
2003-04
%
%
%
%
%
%
New South wales Paddock Over the hooks Auction Over the scales – excl. auction Other Transfer off-farm
8.3 24.0 59.1 6.4 1.6 0.6
(36) (28) (12) (80) (90) (70)
7.2 (26) 19.2 (27) 71.9 (7) 1.6 (49) 0 – 0.2 –
8.3 21.4 65.3 2.5 1.0 1.5
(37) (24) (10) (44) (464) (85)
8.7 16.4 67.7 6.7 0 0.5
6.0 16.4 71.6 4.3 0.9 0.7
(32) (23) (7) (36) – (166)
(31) (35) (9) (48) (118) (64)
8.3 31.5 55.5 4.1 0 0.6
(36) (17) (13) (55) – (136)
continued…
australian beef industry 04.3
4
1
Methods of selling beef cattle a continued Share of total turnoff
1998-99
1999-2000
%
2000-01
%
2001-02
%
2002-03
%
2003-04
%
%
Victoria Paddock Over the hooks Auction Over the scales – excl. auction Other Transfer off-farm
5.5 14.6 74.6 2.3 0 2.9
(37) (31) (6) (87) –
9.9 (37) 10.8 (45) 78.1 (8) 1.2 (53) 0 – 0 –
11.7 14.4 72.0 1.5 0 0.4
(47) (42) (10) (46) –
(91)
8.9 (26) 11.9 (53) 75.0 (9) 4.2 (44) 0 – 0 –
(55) (29) (12) (68) (62)
(9)
13.5 18.8 66.1 0.5 1.0 0
(34) (40) (13) (64) –
–
22.7 11.3 62.2 3.7 0 0.1
6.5 51.8 23.3 4.0 0 14.3
(24) (9) (15) (61) – (29)
15.1 33.1 31.3 5.6 0.2 14.7
(25) (15) (14) (44) (142) (42)
14.5 35.3 37.4 4.2 0.2 8.5
(27) (12) (12) (32) (70) (26)
12.2 42.9 24.1 7.0 0.3 13.5
(27) (9) (12) (31) (94) (25)
4.0 26.0 42.9 10.1 1.4 15.7
(31) (15) (17) (22) (73) (25)
7.0 41.5 32.5 1.3 0 17.7
(31) (10) (11) (50) – (18)
9.1 19.9 56.4 11.5 2.1 1.0
(37) (20) (14) (53) (88)
19.5 23.6 53.6 2.3 0 1.0
(23) (22) (13) (44) –
6.3 26.0 51.4 3.3 0 13.0
(49) (23) (16) (119) –
16.6 0.8 51.4 30.8 0 0.4
(59) (113) (28) (32) –
3.9 30.4 61.0 1.4 0 3.3
(24) (24) (12) (39) –
2.2 42.8 52.7 0.7 0 1.5
(75) (57) (43) (68) –
15.2 12.1 50.4 18.5 0 3.8
(46) (35) (24) (51) –
(58) (53) (26) (34) – (369)
10.3 7.8 38.4 40.5 0 3.0
(83) (62) (26) (36) –
(153)
6.9 15.4 44.1 32.9 0 0.7
(115) (97) (41) (16) –
(379)
0.4 4.2 23.6 71.8 0 0
(82) (42) (19) (36) (78) (39)
12.2 21.0 50.4 14.7 0 1.7
(27) (29) (11) (25) –
–
7.6 9.9 54.4 24.4 0.5 3.2
23.2 25.7 46.0 3.8 1.1 0.2
(50) (33) (18) (99) (69) (70)
8.2 41.4 49.3 0.7 0.3 0
(47) (22) (18) (163) (96) –
23.5 33.0 35.8 6.2 1.4 0
(46) (25) (28) (110) (61) –
5.3 42.7 41.9 10.1 0 0
(31) (79) (89) (83) – –
5.8 36.8 49.5 6.2 1.7 0
(75) (23) (18) (95) (68) –
11.6 (83) 61.6 (17) 26.8 (36) 0 – 0 – 0 –
8.6 (29) 11.2 (27) 19.7 (24) 25.8 (21) 0.3 (105) 34.5 (16)
8.5 11.4 14.2 42.6 0 23.4
(48) (33) (28) (30) – (34)
6.4 8.7 11.0 39.7 0.6 33.6
(26) (21) (24) (16) (27) (16)
7.8 5.6 12.6 46.9 0 27.2
(48) (40) (29) (30) – (30)
4.7 28.7 7.1 13.3 0.3 45.9
(89) (17) (50) (56) (90) (13)
7.6 20.2 9.7 30.8 0 31.7
(64)
Queensland Paddock Over the hooks Auction Over the scales – excl. auction Other Transfer off-farm
South Australia Paddock Over the hooks Auction Over the scales – excl. auction Other Transfer off-farm
(69)
(45)
(63)
(91)
(89)
(61)
Western Australia Paddock Over the hooks Auction Over the scales – excl. auction Other Transfer off-farm
(44)
Tasmania Paddock Over the hooks Auction Over the scales – excl. auction Other Transfer off-farm
Northern Territory Paddock Over the hooks Auction Over the scales – excl. auction Other Transfer off-farm
a All broadacre farms with more than 50 head of beef cattle. Excludes major feedlots. Note: Figures in parentheses are standard errors, expressed as percentages of the estimates.
australian beef industry 04.3
5
(61) (28) (41) (38) – (22)
producers and may provide the incentive for producers to modify their production systems to meet buyers’ requirements. Direct methods of sale such as over the hooks also reduce carcass damage and loss of meat quality caused by additional handling and stress involved in saleyard and auction sales.
Longer term trends
G
Turnoff methods for beef cattle, by state
New South Wales 70 60 50 40 30 20 10 % 1998 -99
1999 -2000
2000 -01
2001 -02
2002 -03
2003 -04
Victoria 70 60 50 40 30 20 10 % 1998 -99
1999 -2000
2000 -01
2001 -02
2002 -03
2003 -04
Queensland Paddock Over the hooks Auction
70 60 50 40
Over scales – excl auction Other Transfer off-farm
30 20 10 % 1998 -99
1999 -2000
2000 -01
2001 -02
2002 -03
2003 -04
Since 1990-91, the proportion of beef cattle sold at auction has fallen steadily, from 65 per cent of cattle sales to a low of 44 per cent in 2001-02 (figure F). Drought in 2002-03 resulted in high turnoff of unfinished cattle, particularly in Queensland, New South Wales and Western Australia, resulting in the proportion of cattle being auctioned increasing strongly in these states (figure G, table 1). Nationally, the proportion of beef cattle sold by auction rose to 57 per cent before falling back to 44 per cent in 2003-04 as turnoff reduced. In contrast, the proportion of beef cattle sold over the hooks increased from 21 per cent in 1990-91 to a high of 36 per cent in 199899, falling back to 27 per cent between 1999-2000 and 2000-01 then falling to 24 per cent in 2002-03 as drought forced the turnoff of a high proportion of unfinished cattle. However, with less forced turnoff in 2003-04 and a reduction in live cattle exports from northern Australia, preliminary estimates indicate that over the hooks sales rebounded strongly to almost 40 per cent of sales — only 4 percentage points below auction sales. Over the same period, development of the live export market and commercial feedlots resulted in a significant increase in the proportion of cattle sold over the scales (excluding auction). In 1990-91, only 2 per cent of all cattle sold by specialist beef cattle producers were sold over the scales. By 2001-02 this share had risen to almost 13 per cent (figure F). The proportion of over the scales sales fell with the onset of drought in 2002-03 and a downturn in live cattle exports in 2003-04. The switch between the auction system to more direct selling methods, such as over the hooks, over the scales and paddock sales, is to some extent driven by changes in the distribution of beef cattle, herd sizes and markets targeted. In particular, increasing cattle turnoff from northern Australia has contributed to the growth in the proportion of beef cattle sold over the hooks and scales. Historically, auction sales have been highest in Victoria and New South Wales, states with a high proportion of relatively small herds. However, over the period 2001-02 to 2003-04 the proportion of cattle sold by direct methods in these states, including both paddock and over the hooks, has increased significantly, particularly in Victoria (figure G, table 1). australian beef industry 04.3
6
Selling methods of better performing farms When farms are compared on the basis of their financial performance (ranking farms on the basis of their rate of return, excluding capital appreciation), considerable differences in the selling methods are apparent for the top and bottom performing farms (table 2). In the 2000-01 to 2002-03 period, the top 20 per cent of producers sold an average of 744 cattle, of which 47 per cent were sold over the hooks, 20 per cent via auctions and 16 per cent over scales. The bottom 20 per cent of specialist producers sold an average of 167 cattle, with heavy reliance on auctions (table 2). Better performing farms sell larger numbers of cattle than poorer performing farms and so might be expected to adopt different selling methods.
G
Turnoff methods for beef cattle, by state
South Australia 70 60 50 40 30 20 10 % 1998 -99
1999 -2000
2000 -01
2001 -02
2002 -03
2003 -04
1999 -2000
2000 -01
2001 -02
2002 -03
2003 -04
1999 -2000
2000 -01
2001 -02
2002 -03
2003 -04
Western Australia 70
Box 1: Selling methods
60
Cattle may be sold in Australia as stud, store or finished stock. A variety of different selling methods are used, depending on the type of stock and market outlet for the stock. Paddock sales: Buyers inspect stock on the producer’s property, price is generally negotiated on a dollars per head basis and ownership is generally transferred at the farm gate. This method is often favored for producer to producer sales of store or breeding stock. Over the hooks: Price is negotiated on a cents per kilogram carcass weight basis, with ownership usually transferred at the point of slaughter. Producers receive clear market and price signals relating to carcass quality and are provided with carcass feedback. The principal drawback of over the hook selling is the lack of a price discovery mechanism. Auction sales: Stock is sold by open auction on either a dollars per head basis or, if stock are weighed, on a cents per kilogram live weight basis. Auction sales are usually conducted off farm at saleyards, although they may be held on farm. Ownership is generally transferred at the point of sale. Auction selling involves additional costs and stock handling and can mask the quality–price relationship. However, the interaction of multiple buyers and sellers can allow for true price discovery.
50 40 30 20 10 % 1998 -99
Tasmania 70 60 50 40 30 20 10 % 1998 -99
Northern Territory
Over the scales – excluding auction: This is the most common method of sale for cattle destined for live export. Buyers inspect stock on the producer’s property, price is generally negotiated on a cents per kilogram live weight basis and ownership is transferred either at the farm gate or at the port.
70
Other: Includes AuctionsPlus (formerly CALM), electronic sale by description.
20
Paddock Over the hooks Auction
60 50 40
Over scales – excl auction Other Transfer off-farm
30 10 % 1998 -99
australian beef industry 04.3
7
1999 -2000
2000 -01
2001 -02
2002 -03
2003 -04
Produced by ABARE for:
Further information contact: MLA’s Economic Planning and Market Services Unit on 02 9463 9163 or ABARE Survey Analysis Section on 02 6272 2363. www.mla.com.au
2
Method of selling beef cattle, 2000-01 to 2002-03 Bottom 20% a
Number sold Proportion sold – – – – –
in the paddock over the hook over the scales auctions other
Top 20% a
Average
no.
167
(12)
744
(8)
337
(11)
% % % % %
16 25 11 49 0
(26)
13 47 16 20 4
(20)
9 25 9 47 1
(16)
(20) (25) (12)
(7) (15) (12) (77)
However, in all mainland states including those with a high proportion of small herds such as Victoria, the top 20 per cent of producers consistently sold fewer cattle via the auction system and made greater use of over the hooks, paddock and scales selling methods.
(14) (15) (8) (57)
a Farms ranked by rate of return, excluding capital appreciation. All broadacre farms with more than 50 head of beef cattle. Note: Figures in parentheses are standard errors, expressed as percentages of the estimates.
australian beef industry 04.3
8
