AUSTRALIAN Beef Industry
AUSTRALIAN
Beef 04.1 A U S TIndustry R A L I A N Beef June 2004
AUSTRALIAN BEEF INDUSTRY PRODUCTIVITY AND FINANCIAL PERFORMANCE
Drought resulted in a significant cut to the size of the Australian cattle herd and reduced farm incomes in 2002-03. As recovery from drought proceeded in 2003-04, beef producers’ efforts to rebuild herds limited their beef production and farm incomes. From mid-2002 drought significantly affected pasture and water availability for the majority of Australian beef farms, leading to an increase in beef cattle turnoff and a reduction in herd productivity. Compounding the reduction in feed available, crop production in 2002-03 was one of the worst on record and drought was accompanied by critically low availability of irrigation water in a number of key storages after years of below average rainfall and high irrigation use. As a result, production of irrigated pasture and fodder, traditionally a source of supplementary feed for drought affected areas, was substantially reduced. With a large increase in demand for fodder and feed grain across drought affected areas, fodder and feed grain prices rose sharply in the second half of 2002 and remained high until the last quarter of 2003. Livestock producers had to source a significant portion of their cattle feed requirements from well outside their region, further adding to feed costs.
Beef cattle numbers In the leadup to the drought, high saleyard prices for cattle, fueled by strong global demand and a favorable Australian exchange rate, resulted in herd building activity. By the end of June 2002, cattle numbers reached 27.9 million, the highest since 1978. Nationally, beef cattle numbers are estimated to have fallen by 5 per cent in 2002-03 (figure A) as producers increased turnoff in response to poor pasture and water availability and high feed grain prices. Reflecting this, total beef cattle slaughter increased by 7 per cent in 2002-03. However, meat production increased by just 2 per cent as average slaughter weights fell as cattle condition deteriorated during the drought and the proportion of cows and heifers slaughtered increased. The number of cattle in feedlots fell during 2002-03 in response to reduced availability of stock and tighter margins caused by the sharp
A 350
Australian beef cattle Saleyard price
Beef cattle numbers
25
300
20
250
15
200
10
150
5 million
c/kg 1983 -84
1988 -89
1993 -94
1998 -99
2003 -04
abare
increase in feed grain prices and lower demand from the Japanese market that was still recovering from the discovery of bovine spongiform encephalopathy (BSE or ‘mad cow’ disease) in 2001. However, the number of beef cattle in feedlots destined for the domestic market increased to just over 50 per cent. Increasing domestic demand for grain finished cattle, particularly from supermarkets, presented the lot feeding sector with an opportunity to achieve reasonable returns from finishing large numbers of cattle on grain when pasture was rapidly disappearing. Live cattle exports increased by 21 per cent during 2002-03 to a record 968 000 cattle, reflecting strong import demand from Indonesia and lower beef cattle prices. Improved conditions in many parts of Australia in 2003-04 enabled some herd rebuilding to occur. However, rebuilding efforts are likely to be hindered by below average calving rates caused by the poor condition of many producers’ breeding cows. Given that the period between joining a cow and the resultant heifer calf producing offspring takes around three years, it is likely to take three or four years before the cattle herd can recover to predrought levels. The rate at which numbers recover will also be influenced by such factors as producer expectations about future returns from beef and returns from competing farm enterprises. In addition, some areas in both northern and southern Australia experienced a late start to the 2003-04 season, resulting in only a small improvement in pasture growth and a delay in herd rebuilding. In 2003-04, beef cattle numbers are expected to decrease by around 0.6 per cent. As a result of herd rebuilding efforts, beef cattle slaughtering is forecast to fall by around 6 per cent to 8.7 million cattle. However, a recovery in the average slaughter weight is expected to have partially offset the impact of reduced turnoff and production is expected to have fallen by around 4 per cent in 2003-04.
Herd productivity
B 10 8
A feature of the Australian beef industry over the past quarter of a century has been the increase in herd productivity. Beef cattle death rates have fallen significantly over the period since 1977-78, particularly in northern Australia (figure B). Reduced death rates and increased branding rates, even in the face of drought in 2002-03, greatly assisted in reducing the fall in the Beef cattle death rates Specialist beef properties national herd. Improved animal genetics, increased use of Bos indicus cattle in northern Australia, improved herd management, North of Tropic of Capricorn improved disease management, greater ease in moving livestock and fodder and an increase in the options available to producers in turning off cattle, including lot feeding and the development of the live cattle export trade are all likely to be significant factors.
6
Northern Australia
4 2 % of average herd 1977 -78
1982 -83
Southern Australia 1987 -88
1992 -93
1997 -98
2002 -03
Death rates during the 2002-03 drought increased and were relatively high in some parts of Queensland and western New South Wales, but overall remained well below those recorded during the last major drought in 1982-83. Branding rates trended upwards in both southern and northern Australia between 1981-82 and 1999-2000 (figure C). However, since 1999-2000 branding rates have trended downwards in australian beef industry 04.1
2
both northern and southern areas. In large part this is likely to be a consequence of increasingly dry conditions after 2000-01, but is also possible that changes to herd management and high stocking rates in many areas from 1999-2000 may also be a contributing factor. Despite the fall in branding rates since 1999-2000, branding rates during 2002-03 remained relatively high, comparable with those of the early 1990s and much higher than in the 1982-83 drought, which assisted in maintaining herd numbers.
C
Beef cattle branding rates Specialist beef properties Southern Australia
80 70
Northern Australia
60 North of Tropic of Capricorn
50
Herd composition
40
The product requirements of beef markets and differing patterns % of average herd of herd growth between northern and southern Australia led to substantial change in the breed, sex and age composition of the 1977 1982 1987 -78 -83 -88 Australian beef herd between 1990 and 1997. The Australian herd assumed a younger structure and a higher proportion of females, but the rate of change in the sex and age composition slowed noticably between 1997 and 2000. At the same time, the proportion of Bos indicus type cattle increased in the northern herd and the proportion of Angus type cattle increased in the southern herd.
1992 -93
1997 -98
2002 -03
Estimates of the age and sex composition of the beef herd at 30 June 2003 (table 1) obtained for broadacre properties from ABARE’s Australian agricultural and grazing industries survey indicate that the drought resulted in a reduction in the proportion of the herd comprising cows and heifers. Cows and heifers comprised 53.1 per cent of the beef herd on broadacre properties at 30 June 2002 and to 51.9 per cent at 30 June 2003. Overall, broadacre
1
Estimated beef herd composition on broadacre properties p At 30 June 2003
Australia
Calves 1–2 yr old replacement heifers 2–3 yr old cows 4–6 yr old cows 7 yrs plus cows 1–3 yr old other cattle 4–6 yr old other cattle 7 yrs plus other cattle Bulls Total
Northern Australia a
Southern Australia b
2000
2003
2000
2003
2000
2003
million
million
million
million
million
million
5.68 (6) 2.20 (8) 2.91 (8) 4.56 (6) 2.13 (7) 3.68 (9) 0.53 (20) 0.04 (41) 0.47 (7) 22.20
(5)
5.03 (5) 2.04 (5) 2.64 (5) 4.56 (6) 1.76 (6) 4.36 (9) 0.24 (17) 0.07 (26) 0.48 (10) 21.19
(4)
2.96 1.48 1.81 2.47 1.25 2.52 0.44 0.03 0.31 13.28
(9)
2.63 1.17 1.45 2.63 1.08 2.82 0.19 0.07 0.28
(7)
12.31
(8) (11) (11) (9) (10) (12) (24) (42)
(13)
2.72 0.72 1.09 2.09 0.87 1.15 0.10 0.01 0.17
(6)
8.92
(7) (6) (5) (10) (8) (9) (20) (28)
(10)
(8)
2.40 0.87 1.20 1.93 0.69 1.54 0.05 0.01 0.20
(6)
8.88
(6)
(7) (11) (9) (7) (9) (14) (25) (125)
a Queensland, the Northern Territory and the Pilbara and Kimberley regions of Western Australia. b New South Wales, Victoria, South Australia, Tasmania and Southern Western Australia. p Preliminary. Note: Figures in parentheses are standard errors expressed as percentages of the estimates provided.
australian beef industry 04.1
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(6) (9) (9) (7) (18) (33) (51) (15)
All financial and physical data for the red meat industry will be available from 1 July on a free web based database through www.mla.com.au and www.abareconomics.com
properties accounted for 21.9 million cattle or 90 per cent of the estimated 23.4 million beef cattle in Australia at 30 June 2003. The reduction in females is estimated to have been largest in northern Australia (figure D) at around 0.7 million (1.5 per cent reduction) compared with 0.1 million (0.8 per cent reduction) in southern Australia. The reduction in northern Australia occurred mainly in the proportion of young females, up to three years of age, and females over the age of seven. In contrast, in southern Australia the reduction was mainly in females over the age of four, with replacement heifers and younger cows increasing. The number of calves is estimated to have been reduced overall by 0.7 million, with numbers falling in both northern and southern Australia. Similarly, the number of bullocks and other cattle over three years of age is also estimated to have fallen. However, the number of steers (1–3 years of age) increased by almost 0.7 million, increasing most in southern Australia.
D
The reduction in beef cattle numbers since 2000 has been largest in northern Australia, but during 2002-03 the largest percentage reduction in herd size actually occurred on properties carrying less than 300 beef cattle in southern Australia. Many very small beef properties reduced their herds by over 20 per cent. However, because small herds in aggregate account for only a small proportion of the national herd, the impact of the reduction in beef cattle numbers on the national herd is small.
Composition of Australian beef herd Australia 2000
5
2003 4 3 2 1
Financial performance
million
Over 90 per cent of beef cattle in Australia are run on broadacre properties and of these around two thirds are carried on 17 500 properties that are engaged mainly in running beef cattle. These properties are termed ‘specialist beef properties’. A further 22 000 broadacre properties run more than 50 beef cattle, but are engaged mainly in enterprises other than beef cattle. These properties are termed ‘nonspecialist beef properties’.
Northern Australia
3 2 1 million
Southern Australia
3 2
Specialist beef properties
1 million Calves
1–2 yr old replacement heffers
2–3 yr old cows
4–6 yr old cows
7 yr plus cows
1–3 yr old cattle
4–6 yr old cattle
7 yrs plus other cattle
Bulls
Despite increased beef cattle turnoff, total cash receipts fell in 2002-03 because of lower saleyard prices and sales of unfinished stock (table 2). Nevertheless, saleyard prices for beef cattle remained relatively high in historical
australian beef industry 04.1
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2
Financial performance of broadacre beef properties Average per farm
Specialist beef properties 2001-02
2002-03 p
Physical 13 700 14 700 Area operated at 30 June ha Area cropped ha 39 42 Sheep at 30 June no. 67 56 Beef cattle at 30 June no. 907 816 Calves branded no. 274 161 Cattle deaths no. 24 34 Beef cattle purchases no. 50 70 Total beef cattle turned on no. 93 101 Beef cattle sold no. 305 310 Total beef cattle turned off no. 341 351 Cash receipts 7 620 5 300 Crop sales $ Sheep and lamb sales $ 2 310 1 900 Wool sales $ 1 600 2 100 Beef cattle sales $ 216 190 177 900 Other cash receipts $ 28 940 29 600 Total cash receipts $ 256 670 216 800 Cash costs 30 300 31 000 Beef cattle purchases $ Fodder $ 14 380 26 700 Agistment $ 1 640 4 300 Freight, handling and marketing expenses $ 16 080 13 500 Other cash costs $ 114 190 106 600 Total cash costs $ 176 600 182 100 Financial performance 256 670 216 800 Total cash receipts $ less total cash costs $ 176 600 182 100 Farm cash income $ 80 080 34 700 plus buildup in trading stocks $ 8 200 –23 200 less depreciation $ 19 670 18 100 less operator/manager and family labor $ 37 560 35 500 Farm business profit $ 31 050 –42 100 Rate of return excl. capital appreciation % 2.2 –1.4 Rate of return incl. capital appreciation % 6.9 6.8 Farm capital and debt Total farm capital at 30 June $ 2 000 040 1 878 100 Net capital additions $ 15 940 4 700 Farm debt at 30 June $ 153 820 131 500 Total harvest loans at 30 June $ 0 0 Equity ratio at 30 June % 92 93 Other Liquid assets including farm management deposits at 30 June $ 74 110 109 900 Off-farm income $ 27 230 30 400 Population of farms no. 17 520 Sample no. 291 343
2003-04 s na 44 42 783 235 na 64 na 249 na
(18) (18) (31) (5) (6) (7) (33) (25) (8) (8)
2001-02 5 600 276 2 613 367 106 7 26 33 113 117
2002-03 p 5 800 345 2 583 355 82 15 34 53 149 164
2003-04 s (17) (17) (5) (6) (12) (11) (13) (28) (8) (11)
na 367 2 693 365 122 na 38 na 136 na
(25) (31) (34) (12) (16) (11)
4 3 1 174 19 201
000 000 000 000 000 000
115 48 60 78 20 323
100 760 840 250 660 610
132 47 76 75 35 367
000 (25) 900 (7) 600 (6) 800 (7) 100 (30) 300 (6)
117 52 70 90 26 355
000 000 000 000 000 000
(40) (22) (20) (8) (19) (12)
39 12 3 10 107 170
000 000 000 000 000 000
14 4 1 24 178 223
900 810 260 040 420 430
14 25 2 19 228 291
900 800 600 900 000 200
(13) (14) (19) (9) (16) (6)
23 7 2 17 232 280
000 000 000 000 000 000
(11) (12) (24) (35) (6) (4) (17) (27) (14)
201 170 31 11 18 37 –14
000 000 000 000 000 000 000 0.1 na
323 223 100 10 25 40 44
610 430 180 830 400 900 710 3.7 8.3
367 291 76 –4 32 45 –5
300 200 100 200 000 100 100 0.9 8.2
(6) (6) (15) (148) (4) (2) (272) (61) (11)
355 280 76 21 31 47 18
000 000 000 000 000 000 000 2.0 na
1 904 000 na 146 000 na na
1 886 57 208 18
(6) (255) (12)
(1)
(24) (21)
na na
140 2 508 000 (4) 2 370 000 710 56 000 (31) na 730 294 800 (7) 270 000 461 5 143 (7) na 89 88 (1) na
129 870 26 300 22 050 379
p Preliminary estimate. s Provisional estimate. Note: Figures in parentheses are standard errors expressed as a percentage of the estimate provided.
australian beef industry 04.1
Nonspecialist beef properties
5
103 300 (14) 23 100 (18) 411
na na
terms (figure A) and selling cattle was a primary strategy used during the 2002-03 drought, particularly on smaller properties. At the same time, increased expenditure on fodder led to an increase in total cash costs, despite reduced expenditure on repairs and maintenance, livestock purchases and cropping activities. A feature of the 2002-03 drought was the limited use made of agistment because of the widespread nature of the drought in eastern Australia and the relatively high stocking rates of most properties. While agistment expenditure did increase, the increase was small in comparison with what occurred in the 1982-83 drought. With total cash receipts falling sharply and total cash costs rising, farm cash income for specialist beef properties declined by over 40 per cent from the historical high recorded in 2001-02 (figure E).
E
With herd numbers falling the resulting reduction in the value of trading stocks resulted in an even larger fall in farm business profit — farm business profit fell to be similar, in real terms, to that recorded in the 1982-83 drought (figure E).
Financial performance Specialist beef properties
100
Beef cattle turnoff was reduced in 2003-04 as properties began to rebuild herds. So, despite higher saleyard prices, average beef cattle receipts per farm are expected to have fallen. In addition, purchases of beef cattle are estimated to have increased by over 40 per cent, largely offsetting the reduction in fodder expenditure as pasture growth recovers. With a reduction in total cash receipts and only a small fall in farm costs, farm cash income is estimated to have fallen.
Farm cash income
80 60 40 20
2003-04
$’000 –20 –40 Farm business profit
–60 1978 -79
F
1983 -84
1988 -89
1993 -94
1998 -99
2003 -04
Many specialist producers placed proceeds of cattle sales in farm management deposits or used the proceeds to reduce farm debt. As a result, liquid assets, including farm management deposits, are estimated to have increased and farm debt is estimated to have decreased during 2002-03. However, as farms restocked in 200304 farm debt was expected to increase.
Financial performance Nonspecialist beef properties
100 Farm cash income
80
The extent of herd rebuilding in 2003-04 was subdued by continuing drought in some areas and reduced branding rates. Cattle numbers in the beef industry are estimated to have fallen and farm business profit to have improved by almost $30 000 per farm, to an average loss of $13 700, as farms rebuilt fodder and grain stocks.
60
Strong demand for rural land, partly reflecting the general increase in most property values in Australia, resulted in land prices continuing to rise in many regions boosting farm equity and offsetting the reduction in farm capital caused by reduced cattle numbers.
40 20
2003-04
$’000 –20
Nonspecialist beef properties
–40 Farm business profit
–60 1978 -79
1983 -84
1988 -89
1993 -94
1998 -99
2003 -04
Total cash receipts for nonspecialist beef properties rose, on average, in 2002-03. In part this was a result of increased crop receipts (in most cases receipts for crops produced in 2001-02) but australian beef industry 04.1
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also because of increases in wool prices and only a relatively small reduction in beef cattle and sheep receipts. Higher cash costs, particularly fodder costs, resulted in a sharp fall in farm cash income, but overall farm cash income remained relatively high in historical terms (figure F). A reduction in both beef cattle and sheep numbers resulted in a larger fall in farm business profit.
Performance, by herd size Farm cash incomes for specialist beef properties with small herds (less than 300 beef cattle) have trended downwards over the past 25 years. In contrast, farm cash income for beef properties with medium and large herd sizes (300–1200 and more than 1200 head of beef cattle respectively) have trended upwards since the mid-1990s. Farm cash incomes for properties with large herds rose to equal the incomes of the late 1970s in 2000-01 and 2001-02, the highest recorded in the past 26 years (figure G). During the 2002-03 drought, beef cattle turnoff was very high on properties with small beef herds resulting in a large reduction in their herd size. In contrast, the reduction in herd size was much less on medium and large herd properties. High cattle turnoff on small herd properties helped to maintain farm cash income at around the 2001-02 level, but in 2003-04 farm cash incomes are forecast to fall sharply due to the reduced availability of stock for sale and as producers restock in areas where rainfall in 2004 has been adequate for good pasture growth. Farm cash income also fell sharply in 2002-03 for both medium and large herd beef properties (table 3). Incomes for medium herd properties were expected to improve significantly in 2003-04. In contrast, average farm cash income for large herd properties were expected to remain around the 2002-03 level in 2003-04. In large part, the differing patterns of change expected in farm cash income between the two groups reflect the concentration of larger herd size properties in central northern Queensland, where the persistence of drought conditions into 2004 and poor pasture response to the rainfall that has been received in 2004 has delayed herd rebuilding.
G
Farm cash income, by herd size Specialist beef properties More than 1200 head 300 to 1200 head Less than 300 head
300
200
100 2003-04
$’000
1978 -79
H
Farm cash incomes for northern Australian beef properties (Queensland, the Northern Territory, the Kimberley and Pilbara in Western Australia) were both higher and more variable over the past 26 years, particularly in the regions north of the Tropic of Capricorn. Higher incomes in the australian beef industry 04.1
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1988 -89
1993 -94
1998 -99
2003 -04
Farm cash income Specialist beef properties
Northern and southern Australia Small beef properties predominate in southern Australia and so farm cash incomes, on average, remained well below those of northern Australia for all of the past 26 years (figure H). While business profits and rates of return for southern beef producers were typically low the appreciation in capital value of small beef properties in high rainfall areas was substantial over the period, resulting in positive rates of return including capital appreciation.
1983 -84
North of Tropic of Capricorn Northern Australia Southern Australia
300
200
100 2003-04
$’000
1978 -79
1983 -84
1988 -89
1993 -94
1998 -99
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
3
Financial performance of broadacre beef properties, by state, region and property size Average per farm
Farm cash income 2001 -02
2002 -03 p
$
Specialist beef properties
Farm business profit a 2003 -04 s
$
2001 -02
$
$
80 080
34 700 (24)
31 000
31 050
Nonspecialist beef properties 100 180
76 100 (15)
76 000
44 710
Specialist beef properties New South Wales Victoria Queensland South Australia Western Australia Tasmania Northern Territory
21 24 48 37 74 4 19
44 19 146 40 54 36 671
500 100 700 200 200 800 800
(40) (33) (44) (54) (37) (447)
Northern Australia c 166 080 54 400 Southern Australia d 32 430 23 600 North of Tropic of Capricorn 276 550 105 300
(38) (23) (28)
Size of herd Large (over 1200 cattle) Medium (300–1200 cattle) Small (under 300 cattle)
540 420 640 610 880 400 120
3 24 51 61 49 17 (737) 459
000 000 000 000 000 000 000
2002 -03 p
Rate of return b 2003 -04 s
$
2001 2002 -02 -03 p
2003 -04 s
$
%
–42 100 (17) –14 000
2.2
–1.4 (27)
0.1
18 000
3.7
0.9 (61)
2.0
(32) –12 000 (25) –7 000 (18) –33 000 (96) –15 000 (56) 29 000 (126) –1 000 (27) 337 600
0.0 –0.6 3.7 1.4 1.2 0.9 8.5
–2.9 –1.9 –1.9 –1.4 1.9 –0.2 7.1
–5 100 (272)
–4 020 –48 –15 490 –25 80 280 –83 2 510 –26 21 820 48 –260 –10 678 910 502
100 800 200 600 100 000 400
%
%
–0.3 –0.1 –0.1 –0.6 2.5 0.8 (19) 6.0
(39) (31) (28) (161) (56) (535)
58 000 16 000 74 000
105 420 –10 150 202 800
–53 900 (28) –18 000 –35 400 (21) –11 000 8 200 (297) 10 000
4.3 –0.3 5.2
–0.8 (59) 0.4 –2.2 (28) –0.3 1.0 (48) 1.4
346 200 140 500 (32) 114 000 51 030 23 500 (44) 43 000 9 870 9 600 (64) 2 000
276 960 10 080 –31 620
–30 500 (53) 46 000 –37 100 (14) –500 –48 400 (14) –37 000
5.0 1.0 –3.5
0.4 (288) 1.7 –1.3 (14) 0.5 –6.4 (14) –4.7
a Defined as farm cash income plus buildup in trading stock, less depreciation and the imputed value of operator partner and family labor. b Defined as profit at full equity, excluding capital appreciation, as a percentage of total opening capital. Profit at full equity is defined as farm business profit plus rent, interest and lease payments less depreciation on leased items. c Queensland the Northern Territory and the Pilbara and Kimberley region of Western Australia. d New South Wales, Victoria, South Australia, Tasmania and Southern Western Australia. p Preliminary estimate. s Provisional estimate. Note: Figures in parentheses are standard errors expressed as a percentage of the estimate provided.
I
area north of the Tropic of Capricorn in the period since the early 1990s have partly resulted from the development of the live cattle export trade. In 2002-03, live export numbers reached record levels.
Beef properties acquiring land
Land acquisition Since 1998-99 the number of specialist beef properties purchasing or leasing additional land has increased, reaching its highest level in 2001-02 since ABARE started surveying broadacre farms in 197778. Over 9 per cent of all specialist beef properties increased the amount of land they operated in 2001-02 (figure I). This proportion fell during 2002-03 to around 6 per cent, but was still historically high.
8 6 4 2 % 1977 -78
1982 -83
1987 -88
1992 -93
1997 -98
2002 -03
Specialist beef producers were the most active acquirers of land among broadacre farms, but they were also the most active sellers. Many small beef properties in high rainfall near urban areas have been subdivided in recent years.
australian beef industry 04.1
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Beef 04.1 A U S TIndustry R A L I A N Beef June 2004
AUSTRALIAN BEEF INDUSTRY PRODUCTIVITY AND FINANCIAL PERFORMANCE
Drought resulted in a significant cut to the size of the Australian cattle herd and reduced farm incomes in 2002-03. As recovery from drought proceeded in 2003-04, beef producers’ efforts to rebuild herds limited their beef production and farm incomes. From mid-2002 drought significantly affected pasture and water availability for the majority of Australian beef farms, leading to an increase in beef cattle turnoff and a reduction in herd productivity. Compounding the reduction in feed available, crop production in 2002-03 was one of the worst on record and drought was accompanied by critically low availability of irrigation water in a number of key storages after years of below average rainfall and high irrigation use. As a result, production of irrigated pasture and fodder, traditionally a source of supplementary feed for drought affected areas, was substantially reduced. With a large increase in demand for fodder and feed grain across drought affected areas, fodder and feed grain prices rose sharply in the second half of 2002 and remained high until the last quarter of 2003. Livestock producers had to source a significant portion of their cattle feed requirements from well outside their region, further adding to feed costs.
Beef cattle numbers In the leadup to the drought, high saleyard prices for cattle, fueled by strong global demand and a favorable Australian exchange rate, resulted in herd building activity. By the end of June 2002, cattle numbers reached 27.9 million, the highest since 1978. Nationally, beef cattle numbers are estimated to have fallen by 5 per cent in 2002-03 (figure A) as producers increased turnoff in response to poor pasture and water availability and high feed grain prices. Reflecting this, total beef cattle slaughter increased by 7 per cent in 2002-03. However, meat production increased by just 2 per cent as average slaughter weights fell as cattle condition deteriorated during the drought and the proportion of cows and heifers slaughtered increased. The number of cattle in feedlots fell during 2002-03 in response to reduced availability of stock and tighter margins caused by the sharp
A 350
Australian beef cattle Saleyard price
Beef cattle numbers
25
300
20
250
15
200
10
150
5 million
c/kg 1983 -84
1988 -89
1993 -94
1998 -99
2003 -04
abare
increase in feed grain prices and lower demand from the Japanese market that was still recovering from the discovery of bovine spongiform encephalopathy (BSE or ‘mad cow’ disease) in 2001. However, the number of beef cattle in feedlots destined for the domestic market increased to just over 50 per cent. Increasing domestic demand for grain finished cattle, particularly from supermarkets, presented the lot feeding sector with an opportunity to achieve reasonable returns from finishing large numbers of cattle on grain when pasture was rapidly disappearing. Live cattle exports increased by 21 per cent during 2002-03 to a record 968 000 cattle, reflecting strong import demand from Indonesia and lower beef cattle prices. Improved conditions in many parts of Australia in 2003-04 enabled some herd rebuilding to occur. However, rebuilding efforts are likely to be hindered by below average calving rates caused by the poor condition of many producers’ breeding cows. Given that the period between joining a cow and the resultant heifer calf producing offspring takes around three years, it is likely to take three or four years before the cattle herd can recover to predrought levels. The rate at which numbers recover will also be influenced by such factors as producer expectations about future returns from beef and returns from competing farm enterprises. In addition, some areas in both northern and southern Australia experienced a late start to the 2003-04 season, resulting in only a small improvement in pasture growth and a delay in herd rebuilding. In 2003-04, beef cattle numbers are expected to decrease by around 0.6 per cent. As a result of herd rebuilding efforts, beef cattle slaughtering is forecast to fall by around 6 per cent to 8.7 million cattle. However, a recovery in the average slaughter weight is expected to have partially offset the impact of reduced turnoff and production is expected to have fallen by around 4 per cent in 2003-04.
Herd productivity
B 10 8
A feature of the Australian beef industry over the past quarter of a century has been the increase in herd productivity. Beef cattle death rates have fallen significantly over the period since 1977-78, particularly in northern Australia (figure B). Reduced death rates and increased branding rates, even in the face of drought in 2002-03, greatly assisted in reducing the fall in the Beef cattle death rates Specialist beef properties national herd. Improved animal genetics, increased use of Bos indicus cattle in northern Australia, improved herd management, North of Tropic of Capricorn improved disease management, greater ease in moving livestock and fodder and an increase in the options available to producers in turning off cattle, including lot feeding and the development of the live cattle export trade are all likely to be significant factors.
6
Northern Australia
4 2 % of average herd 1977 -78
1982 -83
Southern Australia 1987 -88
1992 -93
1997 -98
2002 -03
Death rates during the 2002-03 drought increased and were relatively high in some parts of Queensland and western New South Wales, but overall remained well below those recorded during the last major drought in 1982-83. Branding rates trended upwards in both southern and northern Australia between 1981-82 and 1999-2000 (figure C). However, since 1999-2000 branding rates have trended downwards in australian beef industry 04.1
2
both northern and southern areas. In large part this is likely to be a consequence of increasingly dry conditions after 2000-01, but is also possible that changes to herd management and high stocking rates in many areas from 1999-2000 may also be a contributing factor. Despite the fall in branding rates since 1999-2000, branding rates during 2002-03 remained relatively high, comparable with those of the early 1990s and much higher than in the 1982-83 drought, which assisted in maintaining herd numbers.
C
Beef cattle branding rates Specialist beef properties Southern Australia
80 70
Northern Australia
60 North of Tropic of Capricorn
50
Herd composition
40
The product requirements of beef markets and differing patterns % of average herd of herd growth between northern and southern Australia led to substantial change in the breed, sex and age composition of the 1977 1982 1987 -78 -83 -88 Australian beef herd between 1990 and 1997. The Australian herd assumed a younger structure and a higher proportion of females, but the rate of change in the sex and age composition slowed noticably between 1997 and 2000. At the same time, the proportion of Bos indicus type cattle increased in the northern herd and the proportion of Angus type cattle increased in the southern herd.
1992 -93
1997 -98
2002 -03
Estimates of the age and sex composition of the beef herd at 30 June 2003 (table 1) obtained for broadacre properties from ABARE’s Australian agricultural and grazing industries survey indicate that the drought resulted in a reduction in the proportion of the herd comprising cows and heifers. Cows and heifers comprised 53.1 per cent of the beef herd on broadacre properties at 30 June 2002 and to 51.9 per cent at 30 June 2003. Overall, broadacre
1
Estimated beef herd composition on broadacre properties p At 30 June 2003
Australia
Calves 1–2 yr old replacement heifers 2–3 yr old cows 4–6 yr old cows 7 yrs plus cows 1–3 yr old other cattle 4–6 yr old other cattle 7 yrs plus other cattle Bulls Total
Northern Australia a
Southern Australia b
2000
2003
2000
2003
2000
2003
million
million
million
million
million
million
5.68 (6) 2.20 (8) 2.91 (8) 4.56 (6) 2.13 (7) 3.68 (9) 0.53 (20) 0.04 (41) 0.47 (7) 22.20
(5)
5.03 (5) 2.04 (5) 2.64 (5) 4.56 (6) 1.76 (6) 4.36 (9) 0.24 (17) 0.07 (26) 0.48 (10) 21.19
(4)
2.96 1.48 1.81 2.47 1.25 2.52 0.44 0.03 0.31 13.28
(9)
2.63 1.17 1.45 2.63 1.08 2.82 0.19 0.07 0.28
(7)
12.31
(8) (11) (11) (9) (10) (12) (24) (42)
(13)
2.72 0.72 1.09 2.09 0.87 1.15 0.10 0.01 0.17
(6)
8.92
(7) (6) (5) (10) (8) (9) (20) (28)
(10)
(8)
2.40 0.87 1.20 1.93 0.69 1.54 0.05 0.01 0.20
(6)
8.88
(6)
(7) (11) (9) (7) (9) (14) (25) (125)
a Queensland, the Northern Territory and the Pilbara and Kimberley regions of Western Australia. b New South Wales, Victoria, South Australia, Tasmania and Southern Western Australia. p Preliminary. Note: Figures in parentheses are standard errors expressed as percentages of the estimates provided.
australian beef industry 04.1
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(6) (9) (9) (7) (18) (33) (51) (15)
All financial and physical data for the red meat industry will be available from 1 July on a free web based database through www.mla.com.au and www.abareconomics.com
properties accounted for 21.9 million cattle or 90 per cent of the estimated 23.4 million beef cattle in Australia at 30 June 2003. The reduction in females is estimated to have been largest in northern Australia (figure D) at around 0.7 million (1.5 per cent reduction) compared with 0.1 million (0.8 per cent reduction) in southern Australia. The reduction in northern Australia occurred mainly in the proportion of young females, up to three years of age, and females over the age of seven. In contrast, in southern Australia the reduction was mainly in females over the age of four, with replacement heifers and younger cows increasing. The number of calves is estimated to have been reduced overall by 0.7 million, with numbers falling in both northern and southern Australia. Similarly, the number of bullocks and other cattle over three years of age is also estimated to have fallen. However, the number of steers (1–3 years of age) increased by almost 0.7 million, increasing most in southern Australia.
D
The reduction in beef cattle numbers since 2000 has been largest in northern Australia, but during 2002-03 the largest percentage reduction in herd size actually occurred on properties carrying less than 300 beef cattle in southern Australia. Many very small beef properties reduced their herds by over 20 per cent. However, because small herds in aggregate account for only a small proportion of the national herd, the impact of the reduction in beef cattle numbers on the national herd is small.
Composition of Australian beef herd Australia 2000
5
2003 4 3 2 1
Financial performance
million
Over 90 per cent of beef cattle in Australia are run on broadacre properties and of these around two thirds are carried on 17 500 properties that are engaged mainly in running beef cattle. These properties are termed ‘specialist beef properties’. A further 22 000 broadacre properties run more than 50 beef cattle, but are engaged mainly in enterprises other than beef cattle. These properties are termed ‘nonspecialist beef properties’.
Northern Australia
3 2 1 million
Southern Australia
3 2
Specialist beef properties
1 million Calves
1–2 yr old replacement heffers
2–3 yr old cows
4–6 yr old cows
7 yr plus cows
1–3 yr old cattle
4–6 yr old cattle
7 yrs plus other cattle
Bulls
Despite increased beef cattle turnoff, total cash receipts fell in 2002-03 because of lower saleyard prices and sales of unfinished stock (table 2). Nevertheless, saleyard prices for beef cattle remained relatively high in historical
australian beef industry 04.1
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2
Financial performance of broadacre beef properties Average per farm
Specialist beef properties 2001-02
2002-03 p
Physical 13 700 14 700 Area operated at 30 June ha Area cropped ha 39 42 Sheep at 30 June no. 67 56 Beef cattle at 30 June no. 907 816 Calves branded no. 274 161 Cattle deaths no. 24 34 Beef cattle purchases no. 50 70 Total beef cattle turned on no. 93 101 Beef cattle sold no. 305 310 Total beef cattle turned off no. 341 351 Cash receipts 7 620 5 300 Crop sales $ Sheep and lamb sales $ 2 310 1 900 Wool sales $ 1 600 2 100 Beef cattle sales $ 216 190 177 900 Other cash receipts $ 28 940 29 600 Total cash receipts $ 256 670 216 800 Cash costs 30 300 31 000 Beef cattle purchases $ Fodder $ 14 380 26 700 Agistment $ 1 640 4 300 Freight, handling and marketing expenses $ 16 080 13 500 Other cash costs $ 114 190 106 600 Total cash costs $ 176 600 182 100 Financial performance 256 670 216 800 Total cash receipts $ less total cash costs $ 176 600 182 100 Farm cash income $ 80 080 34 700 plus buildup in trading stocks $ 8 200 –23 200 less depreciation $ 19 670 18 100 less operator/manager and family labor $ 37 560 35 500 Farm business profit $ 31 050 –42 100 Rate of return excl. capital appreciation % 2.2 –1.4 Rate of return incl. capital appreciation % 6.9 6.8 Farm capital and debt Total farm capital at 30 June $ 2 000 040 1 878 100 Net capital additions $ 15 940 4 700 Farm debt at 30 June $ 153 820 131 500 Total harvest loans at 30 June $ 0 0 Equity ratio at 30 June % 92 93 Other Liquid assets including farm management deposits at 30 June $ 74 110 109 900 Off-farm income $ 27 230 30 400 Population of farms no. 17 520 Sample no. 291 343
2003-04 s na 44 42 783 235 na 64 na 249 na
(18) (18) (31) (5) (6) (7) (33) (25) (8) (8)
2001-02 5 600 276 2 613 367 106 7 26 33 113 117
2002-03 p 5 800 345 2 583 355 82 15 34 53 149 164
2003-04 s (17) (17) (5) (6) (12) (11) (13) (28) (8) (11)
na 367 2 693 365 122 na 38 na 136 na
(25) (31) (34) (12) (16) (11)
4 3 1 174 19 201
000 000 000 000 000 000
115 48 60 78 20 323
100 760 840 250 660 610
132 47 76 75 35 367
000 (25) 900 (7) 600 (6) 800 (7) 100 (30) 300 (6)
117 52 70 90 26 355
000 000 000 000 000 000
(40) (22) (20) (8) (19) (12)
39 12 3 10 107 170
000 000 000 000 000 000
14 4 1 24 178 223
900 810 260 040 420 430
14 25 2 19 228 291
900 800 600 900 000 200
(13) (14) (19) (9) (16) (6)
23 7 2 17 232 280
000 000 000 000 000 000
(11) (12) (24) (35) (6) (4) (17) (27) (14)
201 170 31 11 18 37 –14
000 000 000 000 000 000 000 0.1 na
323 223 100 10 25 40 44
610 430 180 830 400 900 710 3.7 8.3
367 291 76 –4 32 45 –5
300 200 100 200 000 100 100 0.9 8.2
(6) (6) (15) (148) (4) (2) (272) (61) (11)
355 280 76 21 31 47 18
000 000 000 000 000 000 000 2.0 na
1 904 000 na 146 000 na na
1 886 57 208 18
(6) (255) (12)
(1)
(24) (21)
na na
140 2 508 000 (4) 2 370 000 710 56 000 (31) na 730 294 800 (7) 270 000 461 5 143 (7) na 89 88 (1) na
129 870 26 300 22 050 379
p Preliminary estimate. s Provisional estimate. Note: Figures in parentheses are standard errors expressed as a percentage of the estimate provided.
australian beef industry 04.1
Nonspecialist beef properties
5
103 300 (14) 23 100 (18) 411
na na
terms (figure A) and selling cattle was a primary strategy used during the 2002-03 drought, particularly on smaller properties. At the same time, increased expenditure on fodder led to an increase in total cash costs, despite reduced expenditure on repairs and maintenance, livestock purchases and cropping activities. A feature of the 2002-03 drought was the limited use made of agistment because of the widespread nature of the drought in eastern Australia and the relatively high stocking rates of most properties. While agistment expenditure did increase, the increase was small in comparison with what occurred in the 1982-83 drought. With total cash receipts falling sharply and total cash costs rising, farm cash income for specialist beef properties declined by over 40 per cent from the historical high recorded in 2001-02 (figure E).
E
With herd numbers falling the resulting reduction in the value of trading stocks resulted in an even larger fall in farm business profit — farm business profit fell to be similar, in real terms, to that recorded in the 1982-83 drought (figure E).
Financial performance Specialist beef properties
100
Beef cattle turnoff was reduced in 2003-04 as properties began to rebuild herds. So, despite higher saleyard prices, average beef cattle receipts per farm are expected to have fallen. In addition, purchases of beef cattle are estimated to have increased by over 40 per cent, largely offsetting the reduction in fodder expenditure as pasture growth recovers. With a reduction in total cash receipts and only a small fall in farm costs, farm cash income is estimated to have fallen.
Farm cash income
80 60 40 20
2003-04
$’000 –20 –40 Farm business profit
–60 1978 -79
F
1983 -84
1988 -89
1993 -94
1998 -99
2003 -04
Many specialist producers placed proceeds of cattle sales in farm management deposits or used the proceeds to reduce farm debt. As a result, liquid assets, including farm management deposits, are estimated to have increased and farm debt is estimated to have decreased during 2002-03. However, as farms restocked in 200304 farm debt was expected to increase.
Financial performance Nonspecialist beef properties
100 Farm cash income
80
The extent of herd rebuilding in 2003-04 was subdued by continuing drought in some areas and reduced branding rates. Cattle numbers in the beef industry are estimated to have fallen and farm business profit to have improved by almost $30 000 per farm, to an average loss of $13 700, as farms rebuilt fodder and grain stocks.
60
Strong demand for rural land, partly reflecting the general increase in most property values in Australia, resulted in land prices continuing to rise in many regions boosting farm equity and offsetting the reduction in farm capital caused by reduced cattle numbers.
40 20
2003-04
$’000 –20
Nonspecialist beef properties
–40 Farm business profit
–60 1978 -79
1983 -84
1988 -89
1993 -94
1998 -99
2003 -04
Total cash receipts for nonspecialist beef properties rose, on average, in 2002-03. In part this was a result of increased crop receipts (in most cases receipts for crops produced in 2001-02) but australian beef industry 04.1
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also because of increases in wool prices and only a relatively small reduction in beef cattle and sheep receipts. Higher cash costs, particularly fodder costs, resulted in a sharp fall in farm cash income, but overall farm cash income remained relatively high in historical terms (figure F). A reduction in both beef cattle and sheep numbers resulted in a larger fall in farm business profit.
Performance, by herd size Farm cash incomes for specialist beef properties with small herds (less than 300 beef cattle) have trended downwards over the past 25 years. In contrast, farm cash income for beef properties with medium and large herd sizes (300–1200 and more than 1200 head of beef cattle respectively) have trended upwards since the mid-1990s. Farm cash incomes for properties with large herds rose to equal the incomes of the late 1970s in 2000-01 and 2001-02, the highest recorded in the past 26 years (figure G). During the 2002-03 drought, beef cattle turnoff was very high on properties with small beef herds resulting in a large reduction in their herd size. In contrast, the reduction in herd size was much less on medium and large herd properties. High cattle turnoff on small herd properties helped to maintain farm cash income at around the 2001-02 level, but in 2003-04 farm cash incomes are forecast to fall sharply due to the reduced availability of stock for sale and as producers restock in areas where rainfall in 2004 has been adequate for good pasture growth. Farm cash income also fell sharply in 2002-03 for both medium and large herd beef properties (table 3). Incomes for medium herd properties were expected to improve significantly in 2003-04. In contrast, average farm cash income for large herd properties were expected to remain around the 2002-03 level in 2003-04. In large part, the differing patterns of change expected in farm cash income between the two groups reflect the concentration of larger herd size properties in central northern Queensland, where the persistence of drought conditions into 2004 and poor pasture response to the rainfall that has been received in 2004 has delayed herd rebuilding.
G
Farm cash income, by herd size Specialist beef properties More than 1200 head 300 to 1200 head Less than 300 head
300
200
100 2003-04
$’000
1978 -79
H
Farm cash incomes for northern Australian beef properties (Queensland, the Northern Territory, the Kimberley and Pilbara in Western Australia) were both higher and more variable over the past 26 years, particularly in the regions north of the Tropic of Capricorn. Higher incomes in the australian beef industry 04.1
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1988 -89
1993 -94
1998 -99
2003 -04
Farm cash income Specialist beef properties
Northern and southern Australia Small beef properties predominate in southern Australia and so farm cash incomes, on average, remained well below those of northern Australia for all of the past 26 years (figure H). While business profits and rates of return for southern beef producers were typically low the appreciation in capital value of small beef properties in high rainfall areas was substantial over the period, resulting in positive rates of return including capital appreciation.
1983 -84
North of Tropic of Capricorn Northern Australia Southern Australia
300
200
100 2003-04
$’000
1978 -79
1983 -84
1988 -89
1993 -94
1998 -99
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
3
Financial performance of broadacre beef properties, by state, region and property size Average per farm
Farm cash income 2001 -02
2002 -03 p
$
Specialist beef properties
Farm business profit a 2003 -04 s
$
2001 -02
$
$
80 080
34 700 (24)
31 000
31 050
Nonspecialist beef properties 100 180
76 100 (15)
76 000
44 710
Specialist beef properties New South Wales Victoria Queensland South Australia Western Australia Tasmania Northern Territory
21 24 48 37 74 4 19
44 19 146 40 54 36 671
500 100 700 200 200 800 800
(40) (33) (44) (54) (37) (447)
Northern Australia c 166 080 54 400 Southern Australia d 32 430 23 600 North of Tropic of Capricorn 276 550 105 300
(38) (23) (28)
Size of herd Large (over 1200 cattle) Medium (300–1200 cattle) Small (under 300 cattle)
540 420 640 610 880 400 120
3 24 51 61 49 17 (737) 459
000 000 000 000 000 000 000
2002 -03 p
Rate of return b 2003 -04 s
$
2001 2002 -02 -03 p
2003 -04 s
$
%
–42 100 (17) –14 000
2.2
–1.4 (27)
0.1
18 000
3.7
0.9 (61)
2.0
(32) –12 000 (25) –7 000 (18) –33 000 (96) –15 000 (56) 29 000 (126) –1 000 (27) 337 600
0.0 –0.6 3.7 1.4 1.2 0.9 8.5
–2.9 –1.9 –1.9 –1.4 1.9 –0.2 7.1
–5 100 (272)
–4 020 –48 –15 490 –25 80 280 –83 2 510 –26 21 820 48 –260 –10 678 910 502
100 800 200 600 100 000 400
%
%
–0.3 –0.1 –0.1 –0.6 2.5 0.8 (19) 6.0
(39) (31) (28) (161) (56) (535)
58 000 16 000 74 000
105 420 –10 150 202 800
–53 900 (28) –18 000 –35 400 (21) –11 000 8 200 (297) 10 000
4.3 –0.3 5.2
–0.8 (59) 0.4 –2.2 (28) –0.3 1.0 (48) 1.4
346 200 140 500 (32) 114 000 51 030 23 500 (44) 43 000 9 870 9 600 (64) 2 000
276 960 10 080 –31 620
–30 500 (53) 46 000 –37 100 (14) –500 –48 400 (14) –37 000
5.0 1.0 –3.5
0.4 (288) 1.7 –1.3 (14) 0.5 –6.4 (14) –4.7
a Defined as farm cash income plus buildup in trading stock, less depreciation and the imputed value of operator partner and family labor. b Defined as profit at full equity, excluding capital appreciation, as a percentage of total opening capital. Profit at full equity is defined as farm business profit plus rent, interest and lease payments less depreciation on leased items. c Queensland the Northern Territory and the Pilbara and Kimberley region of Western Australia. d New South Wales, Victoria, South Australia, Tasmania and Southern Western Australia. p Preliminary estimate. s Provisional estimate. Note: Figures in parentheses are standard errors expressed as a percentage of the estimate provided.
I
area north of the Tropic of Capricorn in the period since the early 1990s have partly resulted from the development of the live cattle export trade. In 2002-03, live export numbers reached record levels.
Beef properties acquiring land
Land acquisition Since 1998-99 the number of specialist beef properties purchasing or leasing additional land has increased, reaching its highest level in 2001-02 since ABARE started surveying broadacre farms in 197778. Over 9 per cent of all specialist beef properties increased the amount of land they operated in 2001-02 (figure I). This proportion fell during 2002-03 to around 6 per cent, but was still historically high.
8 6 4 2 % 1977 -78
1982 -83
1987 -88
1992 -93
1997 -98
2002 -03
Specialist beef producers were the most active acquirers of land among broadacre farms, but they were also the most active sellers. Many small beef properties in high rainfall near urban areas have been subdivided in recent years.
australian beef industry 04.1
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