How are global and Australian beef producers performing? · Vietnam and the Philippines expected to...

Written by Karl Behrendt (Charles Sturt University) and Peter Weeks (Weeks Consulting Services) Commissioned by Meat & Livestock Australia

January 2019

How are global and Australian beef producers performing? Global agri benchmark network results 2018

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Published by Meat & Livestock Australia Limited ABN 39 081 678 364January 2019© Meat & Livestock Australia Limited 2019

MLA Market Information Report – How are global and Australian beef producers performing?

Page i – Global agri benchmark network results 2018 – BEEF

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ContentsHighlights ........................................................................1

Introduction ........................................................................ 2

What is agri benchmark?................................................... 2

Global price and cost trends ............................................. 4Currency movements ..................................................................... 4Food and meat prices .................................................................... 4Global cattle price trends .............................................................. 5

Cattle price forecasts ......................................................... 6OECD-FAO projections .................................................................. 6USDA projections ........................................................................... 7

Global beef supply ............................................................. 7Beef production sustainability ...................................................... 8The impact of emerging technologies on beef producers ...... 9Beef trade ........................................................................................ 9Beef market access uncertainty ..................................................10

Global performance of beef farms ..................................12

How e�cient are Australian beef producers? ...............13Cow-calf enterprises .....................................................................13

Stocking rates of cow-calf enterprises ...................................................................13Weaning rates (calves per 100 cows)......................................................................13Total live weight produced per cow ........................................................................13Weaner and cull cow prices ......................................................................................13Total cow-calf returns (revenue) ...............................................................................14Total cost of cow-calf production .............................................................................14Labour costs and productivity ..................................................................................15Total costs, returns and profitability of cow-calf production in 2017 ..............15

In comparison…Australian cow-calf finishing systems have: ..16 Cattle finishing enterprises ..........................................................16

Live weight at start and weight at end of finishing phase .................................16Daily and net weight gain ..........................................................................................17Comparison of beef prices from 2012 to 2017 .....................................................17Costs of finishing ..........................................................................................................18Total costs and farm rankings ...................................................................................18Finishing costs, returns and profitability ................................................................19

In comparison…Australian beef finishing systems have: .......20

Global agri benchmark network results 2018 – BEEF – Page 1


HighlightsBeef cattle

• Global food and beef prices fell back from their record levels in the 2011-2014 period to reach a near-term low point in 2016 (still around 50% higher than levels prior to 2004). However, 2017 saw a partial recovery which has been consolidated in 2018. The FAO beef price index in the first seven months of 2018 was around 10% above its 2016 low and a similar distance below its 2014 peak. This reflects strong demand (including in the US and emerging Asia) and was despite of rising US supplies.

• The latest global OECD-FAO projections and 2018 agri benchmark Conference suggest that the latest rally in beef prices will be short-lived and replaced with a slow fall in nominal prices (more significant in real terms) over the next six years as US supply initially grows and is followed by Brazil, Argentina and Australia.

• Global beef production is on the rise, following a period of favourable prices and profitability. Hence, cattle prices and profits are easing, especially within the cattle finishing segment.

• However, the Australian cattle herd has fallen an estimated 6% since the global beef price peak in 2014, due to a series of severe widespread droughts. Hence, while Australian farms still had a relatively low cost of production in 2017, cattle prices and cattle farm profitability were high relative to other countries (including the US and Europe), boosted by producer efforts to start rebuilding (again halted by drought in 2018).

• Beef supply chain sustainability was again a front-line issue at the 2018 agri benchmark Conference. This is hardly surprising given the Conference was held in Ireland, where there have been considerable efforts to lift and promote sustainability, encouraged by its growing important within EU CAP payments to producers.

• Notable within this was the increasing importance being placed on animal welfare and a consumer preference for grassfed beef (which dominates Irish and Australia production).

• Global beef trade has been steadily expanding over the past 20 years, driven by import demand growth in Asia (China, Japan, South Korea and Indonesia), the Middle East, Germany and the Netherlands.

• The OECD-FAO is predicting a slowdown in global beef trade growth in the coming decade, due to weaker beef demand growth generally and slower import growth in China. Asia is still seen as the key growth region, but with Vietnam and the Philippines expected to feature, rather than China. Other projected meat import growth regions are the Middle East, Africa and possibly Russia.

• Beef market access was again a major concern of network countries at the 2018 agri benchmark Conference, heightened by the US trade tariff war with China, Turkey and elsewhere and ongoing trade threats (particularly towards Mexico and Canada), Russian beef import bans, Brexit, regional trade deals, and the proliferation of bilateral trade deals recently struck or in the pipeline.

• Combined, the renewed push towards protectionism in key countries (led by the US) and rejection of multilateral agreements in favour of bilateral trade agreements, threatens to reverse the gains in the global beef trade from liberalisation of the past 30 years and further distort beef trade flows.

• Most agri benchmark beef farms were short- and medium-term profitable in 2017, covering cash costs and depreciation. However, as is normally the case, few countries can boast long-term profitability in beef production – i.e. they are unable to cover opportunity costs.

• A second year of high beef prices improved results for Australian farms in 2017 when compared to 2015 levels, whereas globally, profitability fell marginally for most countries.

• Typical Australian beef farms achieved the highest levels of profitability since 2006 and were mostly profitable on both a short- and medium-term basis in 2017, and four of the nine systems being monitored were profitable in the long-term – despite Australia’s relatively moderate operating costs and high opportunity costs of land, infrastructure and labour.

• Most cow-calf enterprises have continued to be profitable since 2015. Cattle finishing only maintained profitability in 2017, especially in northern systems, whereas southern systems have suffered reduced profitability caused by increased costs of production.

• Northern Australian beef systems have moderate to low calf weaning rates and cow herd productivity, when compared with similar systems.

• Australia achieves moderate weight gains in southern farming systems, but low gains in extensive northern systems.

• Overall, in 2017 Australia experienced moderate costs of production, but achieved higher overall profitability due to the higher returns and beef prices, which is the opposite to trends in the majority of major beef producing countries.

Global agri benchmark network results 2018 – BEEF


1 See http://www.agribenchmark.org/home.html

IntroductionThis report presents the agri benchmark network’s perspectives on recent global beef developments, the economics and drivers facing producers around the world, farm profitability (globally and in network countries) and views on likely future developments and challenges.

It then asks, how competitive are Australian beef producers and what are the main areas where our productivity differs from other countries?

The analysis and perspectives are as of mid-2018, though farm data is for the 2017 calendar year.

What is agri benchmark?1

agri benchmark is a global, non-profit and non-political network of agricultural economists, advisors, producers and specialists in key sectors of agricultural value chains. The cattle network has over 30 member countries, covering 75% of world beef production and has been producing the results of comparative analysis over the last 16 years.

The core competence of the network is in analysing production systems, their economics, drivers and perspectives.

agri benchmark aims to assist:

• producers and their organisations to better align future production through analysis of comparative performance and positioning;

• non-profit organisations (governments, NGOs, international organisations) to monitor global agricultural challenges; and

• agri-businesses to operate successfully through in-depth understanding of markets and customers.

agri benchmark has branches covering beef cattle, sheep, dairy, pigs, cash crops, horticulture, organic farming and fish. Within cattle, it covers both breeding and finishing enterprises (cow-calf and cattle finishing). It is also unique in being able to separately measure the performance of breeding and finishing operations even on joint breeding/finishing enterprises. Furthermore, it measures beef enterprise performance separately from (and together with) other outputs where the enterprise is diversified (in southern Australia typically with cropping and/or sheep).

Figure 1: Countries in the agri benchmark beef and sheep network

Countries with beef data only

Countries with beef and sheep farm data

Countries with sheep data only

Contacts for further growth

2018 Countries Farms Years in network

Beef 2 170* 16

Cow-calf 27 72 14

Finishing 32 98 16

Sheep 19 39 7

*37 farms appear twice due to complete cycle (cow-calf + finishing in one farm)



Figure 2: Location of Australian agri benchmark typical cattle farms and beef cattle density

HOBART

AU-200/80

ADELAIDE

SYDNEY

CANBERRA

BRISBANE

PERTH

DARWIN

MELBOURNE

Kilometres

250 500 750 1,0000

N

AU-500/450

AU-180/65

AU-520/310

AU-2700/930

AU-900/280

AU-350/150

>51

31 - 50

11 - 30

3 - 10

0 - 2

Legend - cattle per sq km

AU-6500/1700

AU-2300/750

Source: ABS data, MLA agri benchmark

The farm-level results in this report are drawn from the collection of ‘typical farm’ data in each country, and subsequent analysis and research efforts of all member countries culminating in the 16th annual agri benchmark conference in Galway, Ireland, 15-20 June 2018.

A ‘Typical farm’ can be based on data for an actual farm judged to be typical of a key production system in a key region2 or ‘engineered’ by local producers and experts to be typical (using annual data drawn from farms in the key production regions). In Australia, data was collected for nine typical beef farms in Queensland, the Northern Territory, NSW and Victoria.

Table 1: Australian agri benchmark typical cattle farms

Held/Sold (Cows/Steers) Farm make-up

AU 180/65 (180 Cows held/65 steers sold) – northern tablelands NSW; Angus + sheep + wool; pasture feed base

AU 200/80 southern tablelands NSW; British breed; pasture feed base

AU 350/150 western districts Vic.; Angus; pasture, hay, oaten grain feed based

AU 900/280 central Qld; Bos Indicus; pasture, mineral supplements feed base

AU 520/310 south east Qld; Simmental X Droughtmaster; cattle + crops; pasture feed base

AU 6500/1700 Northern Territory, Bos indicus; live export; pasture, mineral supplements feed base

AU 500/450 northern slopes NSW; Charolais X Angus; pasture, hay, sorghum feed base

AU 2700/930 central Qld, Bos indicus; cattle + crops; pasture, oats grazing feed base

AU 2300/750 Qld Gulf, Bos indicus; pasture, mineral supplements feed base

2 Such individual farm data is further ‘typified’ where necessary by replacing farm individual particularities by prevailing characteristics, figures, technologies and procedures.



Global price and cost trends

Currency movementsThe US dollar (USD) rose appreciably in 2015 and 2016 (see Figure 3) – by 20-40% against most currencies but even higher against those in South America – exacerbating falls in global food and beef farm prices in USD terms since their 2011-2014 peaks. However, when expressed in local currency terms, farm output and input prices rose. Currency fluctuations had less influence on developments in 2017, except notably for further falls in the UK pound and Argentine peso.

Figure 3: Change in currencies against the USD since 2014

-140

-120

-100

-80

-60

-40

-20

0

Arg

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a

Aus

tria

Aus

tralia

Braz

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Bots

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Switz

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nd

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guay

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frica EU

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t USD

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Source: oanda.com and agri benchmark

Food and meat pricesGlobal food prices (in USD) doubled in the 10 years to 2011 and have been highly volatile over the past 15 years (see Figure 4). Currency volatility, especially the USD, has played a significant part in this, as has fluctuating crop harvests (and inventories) and growth in food demand and imports in developing countries, led by China.

While cereal prices peaked in 2011, dairy product and meat price peaks were typically lagged by 2-3 years (as livestock production takes time to adjust to changes in grain input costs) – peaking in 2013 and 2014, respectively.

Global food prices reached a low point in 2016 but were still 50% higher than prior to 2004. Since mid-2016, prices have mounted a significant recovery (in USD), especially for dairy products.

0

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Price indices (2002-2004 = 100)

Food

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Source: FAO Food Indices2016

2018

Jan-Oct

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Bovine meat Meat price index Poultry meat Pig meat

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Figure 4: FAO global food price indicies (based on USD prices)

Figure 5: FAO global meat price indicies (based on USD prices)

All meat category prices rose in 2017, and red meat prices continued to recover in the first seven months of 2018 (helped by some weakening in the USD), while pig and poultry meat prices lost most of the 2017 gains.

In the first seven months of 2018, beef prices were 10% above the recent 2016 low and within 9% of the year peak in 2014. The FAO sheepmeat price index was the standout, having risen 44% from 2016 to the first seven months of 2018, leaving prices within 4% of the phenomenal peak in 2011. However, this partly reflects the fact that this price index is based on a New Zealand export lamb price only. While Australian prices have also mirrored this trend, sheepmeat prices elsewhere have not, notably in Europe, North America and China.

In contrast to the red meats, poultry and pig meat prices only rose 5% and 3% between 2016 and 2018 (first seven months) leaving 2018 prices still 20% and 23% off their respective peaks (in 2013 and 2014).



Global cattle price trendsUsing agri benchmark farm data, finished cattle (beef) prices were stable-to-higher in most countries (in USD) in 2017, led by stabilisation in prices in the US. There were notable rises in China and Indonesia as supply struggled to match ongoing demand growth and in Brazil and Argentina assisted by low currencies. Agri benchmark farm prices also rose in Australia (on lower post-drought supplies), Germany and Mexico in 2017.

Australian cattle prices were relatively high during 2017 (in USD terms), and importantly were above those in North America, New Zealand and much of Europe.

Figure 6: Cattle sale prices 2015 to 2017 in agri benchmark countries

2015 2016 2017

Europe NorthAmerica

0

200

400

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1,000

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USD

per

100

kg c

arca

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Asia/OceaniaSouthAmerica

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tria

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nd

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guay

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ted

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guay

Sout

h A

frica

Ger

man

y

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ce

Spai

n

Irela

nd

Italy

Switz

erla

nd

Source: agri benchmark

Brazil



Cattle price forecasts

OECD-FAO projectionsThe OECD-FAO in its latest Agricultural Outlook report (2018 to 2027, released in July 2018) stated:

“Global agricultural production is growing steadily across most commodities, reaching record levels in 2017 for most cereals, meat types, dairy products and fish, while cereal stock levels have climbed to all-time highs …” (Press Release 3 July3).

The Outlook projects that the weakening of global demand will persist over the coming decade, sapped by declining population growth, flat levels of per capita consumption for staple foods and slowing demand growth for meat products. At the same time, continuing productivity improvements in agriculture and fisheries is projected to result in a 20% rise in agricultural production over the coming decade.

Beef production in developing and transition countries is projected to be 21% higher in 2027 than in the base period (average 2015 to 2017), with these countries accounting for 75% of the additional beef produced (mainly from Argentina, China, Brazil, Pakistan and Turkey). In developed countries, production is projected to be 9% higher by 2027 compared to the base period, with virtually all this increase coming from the United States – while expansion in Australia, Brazil and Mexico has been delayed and is expected to subsequently slow.

With slowing demand growth and rising supplies, prices of main agricultural commodities are expected to fall in real terms over the coming decade.

In the short-term, OECD-FAO projects beef prices to decline due to ample beef supply from North America following the recent rapid herd rebuild. In line with the expansion of output in key production regions, nominal bovine meat prices are expected to decline until 2024. However, as the beef cow herd declines and production growth rate slows, prices are expected to start to increase towards the end of the projection period.

The OECD-FAO projected nominal price fall for beef is in contrast to other meats that essentially hold in nominal terms over the decade. This reflects the expected beef supply build-up in North and South America, with demand growth slowing but still better than for poultry and pork. This is due to the expected growth in demand in developing countries. “Lower product prices have contributed to making poultry and pig meat the meat of choice for consumers in developing countries but rising income levels allow those consumers to diversify meat consumption, gradually consuming more of the more expensive meat varieties such as beef and lamb.” (OECD-FAO Agricultural Outlook 2018-2027, page 150).

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Index 2002-2004 = 100250

Source: OECD-FAO Agricultural Outlook 2018-202719

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Sheepmeat Poultry Sheepmeat forecast Poultry forecast

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Figure 7: OECD-FAO meat price projections (nominal)

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Source: OECD-FAO Agricultural Outlook 2018-2027

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Figure 8: OECD-FAO meat price projections (in real terms)

Spain

3 http://www.fao.org/news/story/en/item/1143705/icode/



USDA projectionsUSDA’s Agricultural Projections to 2027 released in February 2018 are essentially in line with the OECD-FAO ones summarised above. USDA reports that favourable returns at the start of the projection period (assisted by a high cattle-to-feed price ratio) and robust domestic and export demand (despite a rising USD) should provide the incentive for continued growth of the US livestock sector over the next ten years.

The cattle herd build up has been faster than anticipated, resulting in the recent beef price falls. Further supply growth as the herd expansion phase ends is expected to see cattle prices fall further (even in nominal terms) beyond 2018.

Global beef supplyGlobal beef production is on the rise, following a period of favourable prices and profitability. Hence, cattle prices and profits are easing, especially within the cattle finishing segment – the cattle-to-feed cost ratio is still favourable but falling (see Figure 10).

The recent spike in cattle prices globally (peaking in 2014 in most countries) plus falling grain costs have been largely responsible for triggering a new global cattle cycle. However, a sequence of severe weather events has delayed the herd build up in many important production regions, notably in the Southern Hemisphere. Hence, while the cattle herd build-up in the US is probably past its peak, and beef supplies are rising, herds in the Southern Hemisphere are just starting to rebuild, constraining short-term beef supplies.

Australia is a good example, as drought continues to prevent the cattle herd expansion and cattle prices have not eased appreciably (at least not until the re-emergence of drought in 2018). In 2017 agri benchmark farm results, this was reflected in high Australian farm cattle prices and profitability relative to almost all other agri benchmark countries.

The average Australian farm cattle price (output price) in 2017 was higher-than-average on the agri benchmark’s global beef supply curve (amongst European costs and close to China) and even above North America, New Zealand and some typical European farms (see Figure 11).

Over the past decade (2004-06 to 2014-16) beef production has risen most in China, Brazil, Australia, Turkey, Pakistan, Uzbekistan, Mexico and the African continent. Over the coming decade, the US and Argentina are expected to be major additions to this list, with China, the US, Brazil and Argentina providing the bulk of the global beef supply growth.

The main beef production declines are occurring in Europe (except for the UK and Ireland) and this is expected to continue over the coming decade.

0

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US¢/kg lwt

Feeder steer

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Source: USDA Long Term Agricultural Projections, February 2018 2001

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Source: The World Bank Pink Sheets 2003

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Figure 9: USDA Cattle price projections 2018 to 2027 (nominal)

Figure 10: Beef-to-feed price ratio

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Ukraine

Peru, BotswanaParaguay, Kazakhstan

RussiaBrazil

Uruguay

United States, Canada

ES,ARIndonesia

New Zealand

ItalyGermany

France

Australia

Sweden

China

United Kingdom

Tunisia

Morocco, Austria

Poland

75% 25%agri benchmark

countries Rest of world

Share of agri benchmark countries in global production

Colombia, Mexico

Czechia

South Africa

IrelandNambia


Figure 11: Global beef supply curve (agri benchmark countries)



Another major issue raised at the Conference was the ongoing political and economic instability in key South American supplier countries, especially Brazil and Argentina. Both countries are projected (by OECD-FAO) to be amongst the top four for beef supply growth and top three for beef export growth in the coming decade. Hence, further disruption could have a significant negative impact on global beef supplies, while a period of stability (and favourable weather) could see supplies rise even faster than currently anticipated.

Beef production sustainabilityBeef supply chain sustainability and animal welfare were again front-line issues at the 2018 agri benchmark Conference4.

Environmental restrictions are having significant negative impacts on cattle production in many countries, including recent policy changes in China and New Zealand. This year’s Conference contained a number of contributions in this field, notably a presentation by Ernesto Reyes entitled Recent approaches for assessing sustainability at different levels, addressing progress in defining sustainability and measuring on-farm environmental sustainability and animal welfare.

Another presentation by Kevin Kilcline (Ireland Agriculture and Food Development Authority) entitled Assessing GHG emissions across the Irish sheep meat value chain covered the progress in measuring the carbon footprint on Irish beef farms.

Results of a global consumer survey on sustainability were presented to the Conference by Michael Maloney (Director of Origin Green) of the Irish Food Board. Along with other contributions to the Conference, this presentation highlighted a growing consumer trend towards grassfed beef attributed mainly to sustainability concerns.

Within the social sustainability sphere (sustainability is commonly divided into environmental, social and economic segments), the issue of animal welfare is growing in importance, as live cattle trade expands worldwide.

This issue is receiving increased attention globally. In Europe it is being elevated by the growth in trade from EU countries to Turkey, the Middle East and North Africa.

Figure 12: Global live cattle trade

0 1,000 2,000

Rest

France

Australia

Mexico

Canada

Thailand

Netherlands

Uruguay

Brazil

Spain

Germany

‘000

hea

d 20

16

3,500 0

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Uruguay

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Brazil

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Canada

Australia

France

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Source: UNComtrade 2018

Top 1065%

of totalTop 551%

A feature of beef farming that is common to almost all countries is the large difference in profitability and cost of production from the top performing producers to the bottom performers, the impact of an aging farmer demographic on productivity and the need for better farmer training/extension.

The impact of emerging technologies on beef producersClaus Deblitz, coordinator of agri benchmark beef and sheep, raised the ‘sleeper’ issue of recent fundamental scientific innovations that are likely to revolutionise farming – notably genome editing (altering DNA), artificial intelligence, blockchain (supply chain information technologies) and alternative proteins.

Some of these technologies have the potential to greatly enhance production efficiency but will require changes to traditional farming. These changes will probably challenge the place of smaller scale, older and part-time farmers. Alternative protein sources like insects, aquaculture and clean meat rather constitute a threat to the present way of livestock farming. Feeding insects as a protein source to animals could offer a new pathway for feed protein supply.

4 See 2018 agri benchmark Conference Global Forum presentations by: Ernesto Reyes, agri benchmark, Recent approaches for assessing sustainability at different levels; Kevin Kilcline, Ireland Agriculture and food development Authority, Assessing GHG emissions across the Irish sheep meat value chain; Michael Maloney, Irish Food Board, Origin Green



Beef tradeGlobal beef trade has been steadily expanding over the past 20 years (see Figure 13), driven by import demand growth in Asia (China, Japan, South Korea and Indonesia), the Middle East, Germany and the Netherlands. Increased exports have principally been supplied by India (to China and Vietnam), Australia (to Asia and the Middle East), the US (to Japan and Korea) and the UK/Ireland (to Germany and elsewhere in Europe). Notably, Brazil was not amongst the main export growth countries over the past decade, due to a combination of trade access issues, competition from grain for land, cattle disease outbreaks, import restrictions and political/economic problems.

Figure 13: Global beef exports

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Source: UNComtrade 2018

‘000

tonn

es 2

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tonn

es

2,933

Figure 14 illustrates the major beef trade flows in 2017. Australia has two major trade flows to the US and North Asia, the US to North Asia and Mexico and Brazil to China/Hong Kong and MENA. All other major exporters have only one primary trade flow – India to China, and Canada and New Zealand to the US.

Figure 14: Major beef trade flows 2017 (‘000 tonnes)

275

304193

193

767

196

551*

213

235310

* Brazil to:China mainland = 211Hong Kong = 340

India to Vietnam

Ireland to UK

Source: agri benchmark mapping tool



Given that some of the main beef producing and exporting countries are also large beef importers, it is useful to look at net beef trade (beef exports less imports), as in Figure 15. Australia was clearly the largest net export of beef in 2015, followed by India and Brazil while the main net importers were China, Japan and Russia – in the US and EU beef exports and imports roughly balanced and, hence, net trade is small.

A relatively minor shift in the beef demand/supply balance in any of the five large consumer/producer countries – the US, China, Brazil, Russia and the EU – would (market access allowing) have a substantial impact on world trade and on dedicated beef exporters such as Australia.

Figure 15: Beef trade balance 2015 (‘000 tonnes)

Source: agri benchmark mapping tool

Brazil: 1,164

NZ 493

Australia 1,518

Japan -554

China -791

Russia -527

India 1,329

EU-28 135

Egypt -362

Not in the map:Bahrain = -11, French polynesia = -7Mauritius = -5, Other Asia, nes = -103,Singapore = -22

The OECD-FAO is predicting a slowdown in global beef trade growth in the coming decade, due to slower beef demand growth generally and smaller import growth in China. Asia is still seen as the key growth region, with Vietnam and the Philippines mentioned as countries likely to greatly increase imports of meat. Other projected meat import growth regions are the Middle East and Africa. Russia could also feature if it were to lift the ban on imports from US, Australia and other countries, though increased Government support for beef production seems likely to limit the expansion in imports of beef.

Beef market access uncertaintyBeef market access was again a major concern of network countries at the 2018 agri benchmark Conference, heightened by US trade threats (especially against China, Turkey, Mexico and Canada), the Russian beef import bans (although it recently re-granted access to some Brazilian plants), Brexit, regional trade deals (such as the Regional Comprehensive Economic Partnership or RCEP) and the proliferation of bilateral trade deals recently struck or in the pipeline (following the failure of global multilateral efforts).

Combined, the renewed push towards protectionism in key countries (led by the US) and rejection of multilateral agreements in favour of bilateral trade agreements, threatens to reverse the gains from trade liberalisation over the past 30 years and further distort beef trade flows. Beef trade is already one of the most distorted commodity trades due to the widespread use of formal and informal (technical) trade barriers.

One presentation to the 2018 Conference, given by Koen Dillen (European Commission) entitled EU trade policy: What’s in it for the beef sector, provided an insight into the EU’s trade approach. EU projections have total EU beef production declining faster than consumption over the next 10 years, reducing exports (currently mainly consisting of low-priced beef, offal and live cattle) and lifting imports (mainly high-priced beef cuts). While the projected change in EU beef trade is not large in percentage terms, it would take around 200,000 tonnes of beef off the world market over the next 10 years, which would be significant.



Dillen also outlined the evolution of CAP payments since 1980 (see Figure 16) from export subsidies and coupled supports (encouraging production) to no export subsidies, decoupled support (less disruptive to world markets) and rural development payments – including a major shift towards environment payments and climate action. While the total EU CAP budget has risen almost 5-fold since 1980, its percentage of EU GDP has fallen from over 0.6% in the early 1990s to less than 0.4% today and is budgeted to fall to 0.3% by 2027.

The proposed CAP plans for 2020 and beyond have an increased emphasis on environment and climate action; generational renewal (support for young farmers); attracting investment in agriculture and research, innovation and training.

Figure 16: EU CAP payment evolution

50

60

70

80

Source: Koen Dillen (European Commission) agri benchmark presentation: EU trade policy: What's in it for the beef sector

0

30

40

20

10

1995

1997

1999

20012003

20052007

20092011

20132015

1991

1993

20172019

20212023

202519

8519

8719

8919

8119

8319

9619

982000

20022004

20062008

20102012

20142016

1992

1994

20182020

20222024

202619

8619

8819

9019

8219

8419

802027

0.5%

0.6%

0.7%

0.8%

0.0%

0.3%

0.4%

0.2%

0.1%

in billion EUR

as share of GDP

Export subsidesDecoupled supportRural development - environment/climatePillar II post-2010 proposal

Other market measuresof which direct paymentsRural development - other measuresCurrent CAP excluding UK

Coupled supportof which green paymentsPillar i post - 2020 proposalCAP as share of EU GDP

The EU have recently completed FTAs with Japan (beef tariff to fall from 38.5% to 9% in 16 years) and Canada (given a 50,000-tonne access to the EU) and are in the process of negotiating FTAs with Australia, New Zealand, Mercosur and the UK (Brexit).

Brexit is of immense concern to beef producers in both the UK and Ireland and to major beef exporters to the EU and UK – especially South America, New Zealand and Australia. The UK is the dominant market for Irish beef and the loss of access would impact the local industry. Brexit has already caused a major slump in Irish beef prices as a result of the associated major devaluation in the UK pound against the Euro.

Uruguay



Global performance of beef farmsFew countries can boast long-term profitability on cattle enterprises at present. Even when net income from other sources or enterprises on the same farm (such as from crops, sheep, wool etc) are counted to yield a whole farm profit5, only some beef farms in the Australia, Argentina, Uruguay, China, Kazakhstan, Ukraine and Indonesia made a profit, without government payments, in 2017.

In Australia, all farms achieved short- and medium-term profits, with four of the nine achieving long-term profitability in 2017.

European beef farms tended to make medium- and long-term losses, which become significantly more severe with the exclusion of government payments. In South America results were mixed, with all countries achieving short-term profits, but only the Uruguay farm and some of the Argentinian farms making long-term profits. Indonesia, China and Kazakstan farms also achieved long-term profits.

While cow-calf enterprises have generally been profitable in most countries, beef cattle finishing has not been as profitable over recent years due to the high cost of weaners and feed.

Figure 17: Whole farm profit margins for combined cow/calf and beef finishing enterprises6

-25

0

25

50

75

100%


-175

-75

-50

-100

-150

-125

Short-term (Cash) Medium-term (Cash-Depreciation) Long-term (Cash-Deprec. - Opp. costs) Long-term (excluding gov. payments)

AUSTRALIA

AT_

30_

25

CH_2

3_15

DE_1

400

_800

FR_8

0B_6

0

FR_8

0A_7

0

ES_1

80_550

UK_70_4

5

UK_100_

80

IE_3

5_30

SE_1

10_80

PL_

45_20

CZ_4

20_5

0

AR_8

00_630

AR_8

50_380

AR_1

100A

_800

UY_2

20_1

20

BR_1

30_35

BR_1

70_60

BR_6

00_240

CO_220_

350

CO_400_

130

CN_1

40_70

ID_2

_1

ID_4

_2

KZ_5

00_800

AU_1

80_65

AU_2

00_80

AU_3

50_150

AU_5

00_450

AU_5

20_310

AU_9

00_280

AU_2

300

_750

AU_2

700

_930

Farm Identification indicates_Country_ number of cows_number finished cattle

5 Beef farm enterprise income refers to income attributed to the beef cattle component of a farm. Similarly, beef cow-calf enterprise income and beef finishing enterprise income refer to income specifically attributed to the beef cow-calf and beef finishing components of the farm (calculated separately, even when combined on the same farm, such as occurs in the typical Australian pasture farms). Whole farm profit refers to the combined income from all enterprises undertaken on the farm, including for example, cropping or sheep, net of the costs of operation. 6 Net profit margin on a whole farm basis is profit as a percentage of gross income from all income sources (including crops, wool and lamb). Short-term profit is where income (from sales and coupled government payments) covers all cash costs (including interest and family wages), medium-term profit allows additionally for depreciation, and long-term profit allows for the opportunity costs of land and other capital invested. Opportunity costs on capital such as land, is calculated using a market leasing rate in each country.

United Kingdom



How efficient are Australian beef producers?

Cow-calf enterprisesStocking rates of cow-calf enterprisesNorthern Australian cow-calf systems have relatively low stocking rates, on a par with similar rangelands of Montana and Kansas (US), Alberta (Canada), and semi-Kalahari bosveld (South Africa). However, southern Australia’s higher rainfall systems maintain high stocking rates and land productivity, similar to the European and the more intensive South American systems.

Weaning rates (calves per 100 cows)The majority of the world’s cow-calf systems tend to maintain similar reproductive rates at around or above 90 calves per 100 cows. However, north Australian systems maintain reproductive rates similar to comparable extensive cattle systems in South America (Brazil, Colombia, Paraguay, Uruguay) and Africa, which range from 50 to 80 calves per 100 cows. Southern Australian systems tend to perform comparably to European, North American and more intensive South American (Argentina, Uruguay) systems. Depending on the costs and benefits of change, this is likely to be an area for further improvement in northern Australia.

Total live weight produced per cowThis ranges from 100-480 kgs globally (kg live weight (lwt) produced per cow per year) – weaners are the main part for most systems, with culled adults being the second most important contributor.

The performance of Australian systems spans the entire data set and is quite diverse, ranging from 97kg to 341kg lwt in 2017. Performance of the most northern Australian systems (AU_6500_1700, AU_2300_750 and AU_900_280) is comparable to other rangeland-based and cut & carry systems of Indonesia, at around 97-197kg lwt per cow (most of which is the sale of cull females). While heavily dependent upon environment and seasonality, this could potentially be an area for significant improvement.

The most southern Australian systems (AU_180_65, AU_500_450 and AU_350_150) have performance comparable to that achieved in Europe and some North American systems.

This indicator is driven by genetic capacity, mature size of the breed, nutrition, reproductive rates, generation interval, growth rates and turn-off weights.

Figure 18: Total kg live weight produced per cow

kg lwt produced per cow


Adult cattle sold/going to finishing Calves sold/going to finishingBreeding animals Cull and slaughter animals

Farm Identification indicates_Country_ number of cows_number finished cattle

0

150

250

350

450

500

AUSTRALIA

50

200

300

400

100

AU_6

500_

1700

ID_3

_0ID

_4_2

CO_2

20_3

50U

Y_15

0_0

ID_2

_1M

X_12

0_0

PY_1

550_

450

CO_1

100_

0CO

_400

_130

AR_1

100B

_0N

A_29

0_0

BR_

170_

60AR

_110

0A_8

00B

W_3

0_0

RU_4

50_0

AU_9

00_2

80AR

_850

_380

CH_2

3_15

UY_

115_

0ZA

_200

_0AU

_230

0_75

0KZ

_500

_800

AR_8

00_6

30AU

_520

_310

CA_8

00B_

0B

R_60

0_24

0ES

_180

_550

ZA_3

50_0

CA_8

00A_

0CN

_140

_70

CA_2

00A_

0U

A_41

0_27

5AU

_270

0_93

0ZA

_250

_0AU

_200

_80

AU_3

50_1

50U

A_29

5_56

00ZA

_400

_0CA

_200

B_0

DE_

300_

0U

K_65

_0U

S_16

0_0

US_

240_

0PL

_45_

20IE

_35_

30D

E_14

00_8

00U

K_70

_45

AU_5

00_4

50CN

_2_0

UK_

100_

80D

E_10

0_0

CZ_4

20_5

0AU

_180

_65

FR_8

5_0

AT_2

5_0

IE_3

0_0

DE_

1100

_0FR

_80B

_60

AT_3

0_25

CH_6

0_0

CH_2

0_0

Weaner and cull cow pricesOverall, Australian weaner prices are similar to those elsewhere in the pasture-based systems of the southern hemisphere (Argentina, Uruguay, Paraguay, Brazil), marginally higher than those received in southern Africa (Namibia and South Africa), but still around 20-30% lower than prices in North America (Canada and US) and the EU, China and Indonesia. In 2017, Australian weaner prices continued to climb from the lows of 2014. With a further rise in cull cow prices in 2017, Australian prices were similar to those received in North America, Europe and Asia, and higher than those received in South America and Africa.



Total cow-calf returns (revenue)In 2017, Australia had moderate and comparable total revenue (returns) from cow-calf operations to that achieved in Argentina and Uruguay. This is an increase from 2015 and 2016 levels, due to a combination of higher weaner and cow prices and moderate production levels (weaning rates and production per cow). Some countries in South America (Colombia, Brazil), Africa, Mexico and the Ukraine maintained noticeably lower returns, whereas the US, Canada, Asia and Europe maintained higher returns. European countries maintained some of the highest returns through additional government payments (both coupled and de-coupled payments).

Total cost of cow-calf productionMost Australian systems maintain a comparably low total cost of production in cow-calf systems – similar to comparable typical cow-calf systems in South America, some Canadian, Ukrainian and South African. The exception in the Australian data is AU_500_450 (north west NSW) which continued to have high animal purchases (replacement breeders) in 2017. Many of the northern Australian systems were increasing their herd size during 2016 and 2017 after being significantly reduced during the drought of 2013-2014. Generally, southern Australian systems have been relatively stable in their costs while northern systems experienced a mixed response to changing feed conditions and non-factor input costs.

Globally on average, the cost of production has increased from lows achieved during 2015, in part due to exchange rate movements. Generally, North and South American, Asian and African systems had all further reduced their cost of production in 2017, by around 5%, whereas European systems have increased their cost of production by another 10-20% from 2015 levels.

In most countries, non-factor costs7 make up 30-60% of the total cost of production, and Australia tends to have similar cost structures to that of the North and South Americans. Most European countries maintain total costs of production around two to three times higher than that for low cost countries like Australia.

Figure 19: Total cost of cow-calf production (US$ per 100kg live weight sold)

AUSTRALIA

500

600

700

Total Costs (USD/100 kg lwt sold)


0

300

400

200

100

Total capital cost Total labour cost Total land cost Non-factor costs

800

Farm identification indicates Country_No. Cows_No. Finished animals

AT_3

0_25

DE_

100_

0D

E_14

00_8

00FR

_80B

_60

FR_8

0A_7

0U

K_70

_45

UK_

100_

80IE

_35_

30SE

_110

_80

PL_4

5_20

CZ_4

20_5

0U

A_29

5_56

00U

A_41

0_27

5RU

_450

_0

CA_2

00B_

0CA

_800

B_0

CA_8

00A_

0U

S_16

0_0

US_

240_

0U

S_60

0_0

MX_

120_

0

AR_8

00_6

30AR

_850

_380

AR_1

100B

_0U

Y_115

_0U

Y_22

0_12

0B

R_13

0_35

BR_

170_

60B

R_60

0_24

0B

R_67

0_0

BR_

2500

_0CO

_220

_350

CO_1

100_

0PY

_155

0_45

0

CN_2

_0CN

_140

_70

ID_2

_1ID

_3_0

ID_4

_2KZ

_500

_800

AU_1

80_6

5AU

_200

_80

AU_3

50_1

50AU

_500

_450

AU_5

20_3

10AU

_900

_280

AU_2

300_

750

AU_2

700_

930

AU_6

500_

1700

ZA_2

00_0

ZA_2

50_0

ZA_3

50_0

ZA_4

00_0

NA_

290_

0B

W_3

0_0

United States

7 Non-factor costs include all the operating costs of the enterprise, both variable and allocated fixed costs



Labour costs and productivityLabour prices in Australia are amongst the highest in the world, but have declined since 2013 in US dollar terms. Australia’s average wages paid for employed staff in 2017 was around US$21/hour, with the opportunity cost of family labour around US$23/hour.

European, North American and South American/African countries averaged $15/hour (excluding Ukraine and Russia at $1-$4/hour), $19/hour (Canada averages $22/hour, excludes Mexico @ $1/hour), and $6/hour, respectively. Asian countries averaged $1/hour.

However, taking into account labour productivity (labour costs per 100kg lwt beef produced), the contribution of labour costs to the production of beef from Australian cow-calf systems is similar to, or lower than, that achieved in the most African, Asian, South and North American systems, where labour is cheaper. European, small scale Asian systems and some South African systems have very high labour costs due to low productivity per unit of labour input.

Total costs, returns and profitability of cow-calf production in 2017The South American and most Australian systems, and some Ukrainian, Asian, Canadian and South African systems, maintain the lowest cash costs and total costs. Most cow-calf systems are capable of producing short- and medium-term profits (enterprise returns less cash costs and depreciation), but only 38% of analysed typical farms are capable of producing long-run profits (enterprise returns less total costs). Notably, the majority of these exist in South America, Asia and Australia.

Seven of Australia’s nine pasture-based farms achieved long-run profits from the cow-calf portion of their operations in 2017 – a rare achievement. With total returns increasing by over 10% for the third time since 2014 and total costs being maintained (particularly in southern systems), the profitability of Australian systems is again at a record high since 2006.

Generally, European systems are high cost systems and most were not capable of maintaining medium-run profits in 2017, although some achieve short-run profits. With additional income provided by government payments (coupled payments), some cover cash costs and depreciation.

Figure 20: Costs, returns and profitability of cow-calf production 2017 (US$ per 100kg live weight sold)

500

600

800Cash and non-cash costs & returns (USD/100kg lwt)


0

300

400

200

100

Opportunity cost Cash costDepreciationCow/calf returns Cow/calf returns + Government payments

AUSTRALIAFarm identification indicates Country_No. Cows_No. Finished animals

700

AT_3

0_25

DE_

100_

0D

E_14

00_8

00FR

_80B

_60

FR_8

0A_7

0U

K_70

_45

UK_

100

_80

IE_3

5_30

SE_1

10_8

0PL

_45_

20CZ

_420

_50

UA_

295_

5600

UA_

410_

275

RU_4

50_0

CA_2

00B_

0CA

_800

B_0

CA_8

00A_

0U

S_16

0_0

US_

240_

0U

S_60

0_0

MX_

120_

0

AR_8

00_6

30AR

_850

_380

AR_1

100B

_0U

Y_11

5_0

UY_

220_

120

BR_1

30_3

5BR

_170

_60

BR_6

00_2

40BR

_670

_0BR

_250

0_0

CO_2

20_3

50CO

_110

0_0

PY_1

550_

450

CN_2

_0CN

_140

_70

ID_2

_1ID

_3_0

ID_4

_2KZ

_500

_800

AU_1

80_6

5AU

_200

_80

AU_3

50_1

50AU

_500

_450

AU_5

20_3

10AU

_900

_280

AU_2

300_

750

AU_2

700_

930

AU_6

500_

1700

ZA_2

00_0

ZA_2

50_0

ZA_3

50_0

ZA_4

00_0

NA_

290_

0BW

_30_

0

Botswana



In comparison…Australian cow-calf finishing systems have:• More diversified whole farm systems (maintaining both cow-calf and finishing systems within the same

business).

• Moderate-to-low weaning rates and moderate-to-low productivity per cow, especially in northern systems which have comparatively low reproductive rates, extended generation intervals, and lower growth rates and turn-off weights.

• Increased revenues due to slightly higher weaner and cull cow prices, with another 10% improvement in total returns from 2016 to 2017, on top of the 30% increase from 2015 to 2016.

• Maintained their cost of cow/calf production since 2015 in the case of southern systems.

• Generally increased their cost of cow/calf production since 2015 in northern systems, but tends to be much more variable.

• Had the most profitable year since 2006, with all Australian systems achieving short- and medium-term profits during 2017, and all but 2 systems achieving long-term profitability, which has been a year-on-year improvement since 2013.

• High labour productivity (kg lwt produced per hour of labour input) to compensate for high wage rates (although the differences in wage costs are reducing, which is in part due to exchange rate movements).

Cattle finishing enterprisesThere was some improvement in beef cattle farm finishing enterprise incomes in 2017 across almost all countries.

While beef finishing farms in almost all countries made short-term (cash) profits in 2017, 70% of them achieved mid-term profits (covering cash costs and depreciation), but less than 20% of them achieved long-term profitability (do not cover the opportunity cost of inputs).

Live weight at start and end of finishing phaseEuropean systems (predominantly silage/grain based) have long finishing periods, high final weights (600-740kg finished live weight) and very low comparable starting weights in some systems (~ 100kg lwt or less). These cattle predominantly come from dairy herds and are either Holstein or dual purpose breeds, like Fleckvieh.

Australian systems are similar to African and UK systems, with similar total weight gains in (400-550kg finished live weight) and entry weights (200-300kg lwt). South American systems tend to be in-between (150-200kg lwt at entry with around a 450-500kg finished weight). In all these regions, the majority of feeder cattle come from specialist cow-calf operations, hence animals are often older and heavier when they enter the finishing process.

Some Australian and South American systems on pastures are characterized by long finishing periods of 500-1000 days, especially under more rangeland conditions.

Figure 21: Change in live weight during finishing (kg)

Change in lwt during finishing (kg per head)


Weight gained during finishing (kg lwt)Weight at start (kg lwt)

AUSTRALIA

PASTURE SYSTEMS

GRAIN-FINISHED

SILAGE SYSTEMS

0

100

200

300

400

500

600

700

800

Farm Identification indicates Country_No. Cows_No. finished cattle sold

CU

T & C

ARRY

ID_0

_4ID

_4_2

MA_

0_2

AR_0

_900

CN

_0_2

000

BW_0

_300

0AR

_0_2

6KZA

_0_7

5KN

A_0_

25K

MX

_0_1

500

ZA_0

_300

0C

O_0

_800

PE_0

_170

0M

A_0_

280

ES_0

_400

ES_0

_650

0BR

_0_5

000

CN

_0_9

40U

S_0_

7200

US_

0_7

5KC

A_0

_28K

CA_

0_15

00

ID_0

_100

MX

_0_1

020

AU_6

500_

1700

AR_1

100A

_800

AR_0

_145

0AU

_230

0_75

0AU

_270

0_93

0C

O_0

_160

AU_3

50_1

50AU

_520

_310

BR_1

30_3

5AU

_200

_80

AR_8

50_3

80U

A_41

0_27

5AU

_180

_65

PY_1

550_

450

BR_6

00_2

40N

A_0_

600

PY_0

_140

0AU

_500

_450

BR_1

70_6

0C

O_4

00_1

30BR

_0_1

750

UY

_220

_120

NZ_

0_37

5BR

_0_3

00AU

_900

_280

CH

_23_

15IE

_35_

30U

K_10

0_80

IE_0

_40

DE_

0_56

0C

H_0

_250

KZ_5

00_8

00C

N_0

_300

RU_0

_640

PL_0

_30

CH

_0_5

5M

A_0_

14C

H_0

_135

DE_

1400

_800

FR_8

0A_7

0U

K_0_

90SE

_0_2

30U

K_0_

750

CN

_140

_70

DE_

0_28

5U

K_70

_45

TN_0

_45

AT_3

0_25

DE_

0_38

0C

N_0

_150

MA_

0_36

AT_0

_35

AT_0

_175

TIT

_0_9

10D

E_0_

260

FR_0

_200

DE_

0_5

25T



Daily and net weight gainThere is a clear relationship between daily weight gains and changes in live weight and finishing period. As would be expected, most grain-finished weight gains exceed those achieved in pasture and silage systems. Notably, around 70% of the European silage-based systems achieved similar or higher weight gains than the lowest performing feedlots from China, Argentina and Colombia.

Australian pasture-based systems had very mixed results n 2017, as the best pasture-based systems rank 1st (AU_500_450, NW NSW), 4th (AU_180_65, NSW northern tablelands) and 8th (AU_200_80, NSW southern tablelands) when compared to other pasture systems. Northern Australian systems continue to record some of the lowest weight gains (AU_2300_750, Qld Gulf; AU_6500_1700, NT), similar to those in South American and African systems.

Figure 22: Daily Live weight gain (grams/day)

Daily live weight gain (grams/day)


AUSTRALIA

PASTURE SYSTEMS

SILAGE SYSTEMS

0

200

400

600

800

1000

1200

1400

1600

1800

2000

Farm identification indicates Country_No. Cows_No. Finished cattle sold

CU

T & CA

RRY GRAIN-FINISHED

ID_0

_4ID

_4_2

MA_

0_2

AR_0

_900

CN

_0_9

40C

N_0

_200

0C

O_0

_800

MA_

0_2

80M

X_0

_150

0AR

_0_2

6KES

_0_6

500

US_

0_72

00PE

_0_1

700

CA_

0_1

500

ES_0

_400

CA_

0_2

8KBR

_0_5

000

ZA_0

_75K

US_

0_7

5KZA

_0_3

000

NA_

0_25

KBW

_0_3

000

AU_2

300_

750

AU_6

500_

1700

AU_2

700_

930

NA_

0_6

00AU

_900

_280

BR_6

00_2

40AU

_350

_150

AU_5

20_3

10BR

_170

_60

BR_0

_300

PY_1

550_

450

AR_0

_145

0PY

_0_1

400

CO

_400

_130

BR_0

_175

0BR

_130

_35

CO

_0_1

60ID

_0_1

00AR

_850

_380

UY

_220

_120

AR_1

100A

_800

IE_3

5_30

IE_0

_40

AU_2

00_8

0U

K_10

0_80

NZ_

0_37

5M

X_0

_102

0AU

_180

_65

CH

_23_

15U

A_41

0_27

5AU

_500

_450

KZ_5

00_8

00U

K_70

_45

UK_

0_90

UK_

0_75

0D

E_0_

285

MA_

0_14

SE_0

_230

CH

_0_2

50D

E_14

00_8

00RU

_0_6

40D

E_0

_280

CH

_0_1

35C

N_0

_300

CN

_0_1

50FR

_80A

_70

DE_

0_26

0C

H_0

_55

DE_

0_52

5TM

A_0_

36AT

_30_

25TN

_0_4

5C

N_1

40_7

0FR

_0_2

00AT

_0_1

75T

DE_

0_56

0IT

_0_9

10

Comparison of beef prices from 2012 to 2017Beef carcase prices generally ranged between US$240 and US$520/100kg carcase weight (cwt) across the globe in 2017, with the exception of closed or protected markets (through both tariff and non-tariff trade barriers), such as China and MENA countries (especially Morocco and Tunisia).

Beef cattle prices generally fell further in 2017, with Australian beef the exception – most typical Australian farms maintained the higher beef prices of 2016 in 2017. For all of the Australian systems, farm-gate prices were US$50-100/100kg cwt higher in 2017 those received in the US and Europe, at around US$480-500/100kg cwt.

Canada and the USA beef cattle prices have fallen considerably from the peak during 2014, and in 2017 were similar to those in Europe. European beef prices generally increased from the lows of 2016, are relatively consistent internally and higher than South American prices (maintained by import barriers) – with the exception of non-EU countries, such as

Ireland



Ukraine, Russia and Poland, who all experienced some recovery in 2017 from significant falls in beef prices since 2014.

China experienced a small reversal of recent falls in beef prices from the highs of 2014. Southern Africa and South American pasture-based systems receive some of the lowest prices with generally small changes in beef prices during 2017. New Zealand prices recovered around $1/kg cwt during 2017 after significant reductions in beef prices since 2014 to a level of around US$400/100kg cwt.

Figure 23: 2012–2017 beef prices received (US$/100kg cwt sold)


AUSTRALIA

0

100

200

300

400

500

600

700

800

1000Beef Prices (US$/100kg cwt)

Au

stri

a

Ge

rma

ny

Fra

nc

e

Sp

ain

Ital

y

UK

Ire

lan

d

Sw

ede

n

Po

lan

d

Cze

ch

Ukr

ain

e

Ru

ssia

Can

ada

US

A

Me

xic

o

Arg

enti

na

Bra

sil

Co

lom

bia

Pe

ru

Ch

ina

Ind

on

esi

a

Nth

NS

W-6

5

Sth

NS

W-8

0

VIC

-15

0

Ce

ntr

al Q

ld-2

80

SE

Qld

-310

Nth

NS

W-4

50

Ce

ntr

al Q

ld-9

30

NT-

17

00

New

Ze

ala

nd

Mo

rro

co

Tu

nis

ia

So

uth

Afr

ica

Nam

ibia

900

Australian farm Identification indicates _number of finished cattle sold

Costs of finishingThe high A$ and drought generally raised the cost of Australian beef production in the years preceding 2017 (especially in 2013 and 2014), relative to farms in the Americas and Europe (in US$ terms), and the total costs of finishing rose further in 2017 for most Australian systems.

For the majority of the world’s finishing systems it cost US$4-$6 per/kg carcase weight sold to finish cattle in 2017, an increase on 2016. The lowest cost finishing systems exist in the Ukraine, southern Africa and South America.

With the recent increase in costs, Australian systems are comparable to the lower cost European and North American finishing systems. The highest cost systems continue to occur in Europe (Germany, Austria, Ireland, Poland and the UK), Asia (China and Indonesia) and Morocco. New Zealand notably maintained its moderate cost finishing system in 2017 due to recent increases in the cost of purchasing backgrounder cattle (dairy beef).

Total costs and farm rankingsIn 2017, the majority of grain- and pasture-based finishing systems tended to have lower costs than silage systems. There are a further six European based silage finishing systems (not shown below) that have total costs ranging from from US$0.97-$1.59/kg cwt. Although most finishing systems experienced a decline in total costs from 2016, the majority of typical farms maintained higher costs than 2015 levels. Non-factor costs dominate each finishing system (of which 30-70% is the cost of transferred/purchased livestock, with this figure being around 70-85% for grain finishing systems), although land, capital and labour contribute more significantly within pasture and silage systems per unit of output.

Figure 24: Total average long-run cost of production (US$/100kg arcass weight sold)


AUSTRALIA

PASTURE SYSTEMS

GRAIN-FINISHING

SILAGE SYSTEMS

Non-factor costs incl. depreciation Total labour cost Total land cost Total capital cost

0

200

400

600

800

1,000

1,200

1,400

Farm identification indicates Country_No. Cows_No. finished cattle sold

US$/100kg cwt sold

CU

T & C

ARRY

ID_0

_4ID

_4_2

MA_

0_2

CO

_0_8

00

NA_

0_2

5KZA

_0_7

5KZA

_0_3

000

MX

_0_1

500

BR_

0_50

00

PE_0

_170

0U

S_0_

75K

CA_

0_1

500

AR_0

_26

KES

_0_6

500

CA_

0_2

8KAR

_0_9

00

US_

0_72

00ES

_0_4

00M

A_0_

280

CN

_0_2

000

CN

_0_9

40

UA_

410

_275

CO

_0_1

60

PY_0

_140

0N

A_0

_600

AR_0

_145

0M

X_0

_10

20B

R_0_

300

BR_

600_

240

BR_

0_17

50PY

_155

0_4

50U

Y_22

0_1

20C

O_4

00_

130

AR_8

50_3

80ID

_0_1

00AR

_110

0A_8

00AU

_500

_450

AU_2

700_

930

NZ_

0_3

75AU

_900

_280

BR_

170_

60

AU_6

500_

1700

AU_2

00_8

0AU

_520

_310

IE_0

_40

AU_3

50_1

50AU

_180

_65

AU_2

300_

750

IE_3

5_30

UK_

100_

80B

R_13

0_35

KZ_5

00_

800

RU_0

_640

DE_

0_28

5D

E_0_

525T

UK_

0_9

0C

N_0

_300

FR_0

_20

0D

E_0_

380

IT_0

_910

DE_

0_56

0AT

_0_1

75T

MA_

0_36

DE_

0_26

0U

K_0_

750

CN

_140

_70

CN

_0_1

50FR

_80

A_70

MA_

0_14

AT_0

_35

TN_0

_45

UK_

70_4

5C

Z_0_

500

DE_

1400

_80

0



Australia pasture based systems had mixed outcomes for the total costs of finishing (in US$) in 2017. For the southern Australian systems, costs increased due to the higher cost of transferred/purchased livestock although feeding costs reduced marginally. However, in northern beef systems total costs declined due to increased outputs and costs remaining relatively constant.

Finishing costs, returns and profitabilityThe majority of beef finishing systems around the world did not generate high enough returns to cover total costs of production in 2017 (long-run costs, including cash, depreciation and opportunity costs) and, in many cases, did not cover medium-term costs of production (cash costs plus depreciation), but most managed to break-even against short-term (cash) costs.

Around two thirds of the South American systems covered their short- and medium-term costs, with only three of the 19 systems covering the opportunity costs and generating long-term profits. All finishing systems in China and Tunisia continue to generate long-term profits, although the profitability of China farms fell between 2014 and 2017, with both increases in costs and reductions in returns. The only other systems to generate long-term profits are some US, Canadian, Mexican and Namibian feedlots (US 75k, CA 1500, MX 1500 and NA 25k respectively), a Ukraine system and small-holder systems in Indonesia and Morocco. For the second year in a row, the New Zealand finishing system did not maintain short-term profitability (did not cover cash costs) in 2017.

Of Australia’s nine pasture-based finishing systems, eight covered both short- and medium-term costs in 2017, with no finishing systems covering opportunity costs (achieving a long-term profit). Only one farm (QLD Gulf AU_2300_750) did not cover cash costs and not achieve short-term profitability for the second year in a row. Although most Australian finishing systems maintain relatively moderate cash costs of production and depreciation costs, they tend to have high opportunity costs (mainly land and infrastructure, and to a lesser extent family labour).

In Europe, even with remaining levels of government payments (coupled payments), most beef finishing systems did not produce medium-term profits (unlike cow-calf systems which also received higher levels of government payments).

Figure 25: Cattle finishing costs, returns and profitability in 2017 (US$/100 cwt)

AUSTRALIASource: agri benchmark

Opportunity cost Cash costDepreciationFinishing returns Finishing returns + Government payments

0

200

400

600

800

1000

1200

1400

Farm identification indicates Country_No. Cows_No. finished cattle sold

US$/100kg Cwt sold

AT_0

_35

AT_0

_175

TD

E_0_

260

DE_

0_28

5D

E_0_

380

DE_

0_52

5TD

E_14

00_8

00

FR_8

0A_

70FR

_0_2

00

ES_0

_400

ES_0

_650

0IT

_0_9

10U

K_70

_45

UK_

100_

80U

K_0_

90

UK_

0_75

0IE

_35_

30IE

_0_4

0U

A_41

0_2

75RU

_0_6

40

CA_

0_1

500

CA_

0_2

8KU

S_0_

7200

US_

0_75

KM

X_0

_10

20M

X_0

_150

0

AR_8

50_3

80AR

_110

0A_8

00AR

_0_9

00

AR_0

_145

0AR

_0_2

6K

UY_

220

_120

BR_

130_

35B

R_17

0_6

0B

R_60

0_24

0B

R_0_

300

BR_

0_17

50B

R_0_

500

0C

O_4

00_

130

CO

_0_1

60

CO

_0_8

00

PE_0

_170

0PY

_155

0_4

50PY

_0_1

400

CN

_140

_70

CN

_0_1

50C

N_0

_300

CN

_0_9

40C

N_0

_200

0ID

_4_2

ID_0

_4ID

_0_1

00KZ

_50

0_80

0

AU_1

80_6

5AU

_200

_80

AU_3

50_1

50AU

_900

_280

AU_5

20_3

10AU

_500

_450

AU_2

300_

750

AU_2

700_

930

AU_6

500_

1700

NZ_

0_3

75

MA_

0_2

MA_

0_14

MA_

0_36

MA_

0_28

0TN

_0_4

5ZA

_0_3

000

ZA_0

_75K

NA_

0_6

00N

A_0

_25K

South Africa



In comparison…Australian beef finishing systems have:• Moderate-to-high weight gains in southern beef systems, but low weight gains in northern beef systems,

mainly due to feed (with performance comparable to pasture/rangeland based South American and African systems). Australian grass-based finishing systems, and other grazing systems around the world, have notably lower levels of weight gains when compared to silage and grain-finishing systems.

• Received above average prices when compared globally, around US$50-100/100kg cwt higher than prices in North America and most European prices. Most countries experienced a reduction in beef prices between 2014 to 2017 (excluding Australia and Tunisia).

• Moderate costs of production when compared with all finishing systems, but above average when compared to other grazing based finishing systems in 2017.

• Return which generally covered the medium-term costs of production – out performing most beef finishing systems in the world (excluding China and Tunisia).

• Slightly lower returns than levels achieved in 2016, but still higher than those from 2013-2014 levels – opposite to most beef finishing systems around the world.

• High land, infrastructure and labour opportunity costs, which tend not to be fully covered through beef returns.

• Lower levels of profitability than the cow/calf component of the whole farm beef production system – a consistent relationship over the last 6 years.

© Meat & Livestock Australia Limited 2019. MLA makes no representation as to the accuracy of any information or advice contained in this document and excludes all liability, whether in contract, tort (including negligence or breach of statutory duty) or otherwise as a result of reliance by any person on such information or advice. Reproduction in whole or part of this publication is prohibited without prior consent and acknowledgement of Meat & Livestock Australia.

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