The Aussies are making hay while the sun shines. With the U.S. facing a long-term challenge in recovering its Japanese and Korean beef market share, Australian cattle feeders are enjoying near-record prices buoyed by the increasing Asian demand for grain-fed beef.
At Sandalwood Feedlot, Dalby, Queensland (QLD), manager Kevin Roberts says his feedlot is bursting its seams, partly due to the increased demand for grain-fed beef in Japan.
With a one-time capacity of 18,000 head and a 50,000-head/year turnover, Sandalwood is one of Australia's largest feedlots. The family-owned operation has been feeding cattle since 1986 with increasing emphasis on the Pacific Rim. Depending on market conditions, about a third to half of Sandalwood's production finds its way to Asia.
“We sometimes amaze ourselves that we can compete with the Americans,” Roberts says. “But as long as the U.S. cattle industry keeps stumbling over itself — and fighting among itself — it will allow beef producers in countries like Australia to gain footholds all over the world.”
The latest statistics indicate there are 650 “accredited” cattle feedlots in Australia, a total one-time capacity of nearly 1 million head. Of these, about 80 can hold more than 10,000 head — 80% of the Aussie capacity. Most growth in the Aussie lot-feeding industry has come since the mid-1980s.
Drought and more drought
Pacific Rim markets aren't the only reason for the surge in Australian cattle feeding. Prolonged drought has made confined feeding outfits a refuge for cattle forced off drought-stressed pasture.
Australia's livestock industries have suffered relatively extreme drought conditions over the past three decades, with the current situation regarded by many as the worst in 100 years. The official line is that severe drought conditions have sharply reduced feed grain and fodder supplies and created downward pressure on livestock inventories.
Cattle producers like Sam White, Bald Blair Angus of Guyra, NSW, and David and Prue Bondfield of Strathgrave, QLD, say they've made significant changes to their operations to protect against drought.
For instance, the Roy Reynolds family of Rosalie Plains Station near Toowoomba, QSD, once boasted one of the largest stations in the fertile Darling Downs region. They also were among Australia's most prominent and successful Hereford breeders.
In recent years, the Reynolds family significantly reduced the size and composition of its herd — turning to what they consider are more drought-tolerant Red Angus lines. They've also begun running yearling steers, an enterprise that offers more market liquidity, Reynolds says. He often sells his yearlings to buyers who are custom-feeding clients at Sandalwood Feedlot.
“But, it's not just a click of the fingers for the feedlot industry to take up the slack whenever the grazing industry is fighting drought,” Sandalwood's Roberts says. “Particularly the larger feedlots, which are in business all year round, have limited capacity to take on drought-affected cattle.” He adds his sector will find it hard to buy the big numbers of drought-affected cattle coming onto the market in the coming winter months.
Value-added cattle feeding
“Numbers” aren't the only measure of what the feedlot sector means to the Aussie beef industry.
“The cattle-feedlot industry is now well established as an important value-adding component of the Australian beef industry,”' says Damon Whittock, Meat and Livestock Australia (MLA) media affairs manager. “The growth in this sector has been stimulated by the increasing demand in our major export and domestic markets for consistent quality in our beef products.”
At Sandalwood, rations and feeding protocol vary on a pen-by-pen basis driven by end-market demands. Most calves, mostly steers, enter the feedlot at 900-1,100 lbs. and are fed for 100, 120, 150 days — and even as long as 300 days. Rates of gain vary, averaging 3-4 lbs./day. Concentrated rations are based on grain sorghum and wheat, with whole cottonseed added — depending on desired rate of gain and the end market.
Interestingly, some of Roberts' customers don't want cottonseed in their rations because they might originate from plants considered genetically modified.
“The customer is the boss,” Roberts says. “If they don't want cottonseed, we'll feed their cattle something else.”
Production demands can even extend to how the cattle are treated in the pens. Most Sandalwood pens are equipped with sunshades, introduced into Australian cattle feeding following a 1992 disaster when a feedlot lost about 2,000 head to heat stress. Roberts points out though, that providing shade tends to offer more comfort to human beings than to cattle. But what began in response to animal welfare concerns has now become a marketing strategy.
“If my client's customers demand cattle be fed under shade, we'll give them all the shade we can muster,” he says. The same goes for use of growth-promoting hormones, which can vary from no hormones at all to intense hormone treatment.
About two-thirds of the cattle fed at Sandalwood are fed for clients — mostly Australian and Japanese beef processors, who procure feeder cattle directly from commercial cattle farmers and through organized auction sales. Sandalwood gets paid for the cost of the feed — excluding medication costs — which currently is about $220/metric ton (mt). The feedlot absorbs any death loss, which averages 0.5%.
“I get paid for how much the cattle eat,” Roberts says. “The weight the cattle put on, and the efficiency with which they do so, is the customer's benefit.”
The North American markets
You certainly can't talk about the Aussie cattle business without mention of the current state of the U.S. beef industry. Customers in the U.S. account for nearly 40% of Australia's beef-export tonnage. In contrast to the Japan and Korea markets though, nearly all the beef sent to the U.S. is low-fat trimmings for hamburger, which allow U.S. processors to add value to their high-fat trimmings.
“The U.S. imports mostly lean beef for manufacturing from Australia, which is then blended with U.S. trimmings to produce a leaner hamburger product,” says Gregg Doud, National Cattlemen's Beef Association chief economist.
Doud says the U.S.-Australia Free Trade Agreement implemented in January 2005 provided increased U.S. market access for Australia under a separate tariff-rate quota (TRQ) for manufacturing beef. All non-NAFTA U.S. beef imports (except thermally processed product), including fresh and frozen beef from Australia, are subject to TRQs as negotiated in the World Trade Organization (WTO) Uruguay Round.
“Australia last filled its WTO TRQ for fresh, chilled and frozen beef in 2001,” Doud explains. “They came close again in 2004, with an export volume that filled 97.68% of its TRQ.”
But Doud says dry weather and ample opportunities in Asian markets suggested early on last year that Australia would export less beef to the U.S. in 2005.
He predicted correctly. USDA Economic Research Service aggregations indicate Aussie beef-import tonnage to the U.S. fell nearly 20% in 2005. Total U.S. beef import volume from Australia in 2005 was 300,406 mt at a value of $917 million (U.S.). Australia's TRQ share is 378,214 mt of the U.S. total 696,621 mt TRQ.
Total exports of Aussie beef are forecast to remain historically high through 2006 although the strong Aussie dollar continues to constrain performance for export industries.
While Canada isn't on Australia's beef export radar screen, Canadian beef processors are hanging by a thread as competitors for the Japanese fed-beef market share. More than six months after the Japanese lifted the ban on North American beef imports, Canada is shipping only a fraction of the beef it shipped prior to its BSE case of May 2003.
The reason they're able to do so is a livestock ID and traceability system in place to assure source of the beef — and in some cases now, age of the animals processed. Through age verification, about 20 mt of beef/week is currently being exported to Japan. Prior to May 2003, about 500 mt/week arrived in Japan from Canada.
“Definitely we're not able to meet the demand,” says Ted Haney, Canadian Beef Export Federation president. He says Japan would happily take beef from animals proven to be less than 21 months of age, but the supply of such documented animals isn't available.
“It's obvious the Canadian cattle industry is finding it difficult to identify those animals in commercially significant volumes,” he says. “But we think, through improvements in physiological age determination, we'll soon be able to dramatically increase our exports to Japan.”
The National Livestock Identification System (NLIS) is Australia's scheme for livestock ID and traceback. Since Jan. 1, 2006, all cattle movements between properties with different property ID codes must be reported to the NLIS database, and all cattle ID'd with an NLIS device before they leave any property.
Similarly, the sale yard or buyer agent, and abbatoir in the case of harvested cattle, are required to notify the database of cattle moving through their premises. It's up to the destination property to notify the database.
Meanwhile, cattle feeders such as Roberts continue to use tools like NLIS and the beef “levy” system (see sidebar) to search and access more markets. Drought notwithstanding, times are seemingly good enough that the Aussie feedlot beef industry can pick and choose its customers.
“We've tried to access the European markets at times,” he says. “We found their inspectors very rude and uncooperative — and I only like to deal with nice people.”
So, for now, the majority of the sector's focus is on the relatively nearby and “nice” Asian customers.
Aussie feedlot industry overview
The majority of feedlots are located in southern Queensland and New South Wales — the major agricultural regions of Australia where there is access to adequate supplies of cattle, water, grain and other feedstuffs.
Very little corn is included in most Australian feedlot rations.
There are about 650 accredited feedlots in Australia, representing a total capacity of almost 860,000 cattle.
The deregulation of the Japanese beef market in the early 1990s was the major driver behind the rapid sector expansion.
In the past five years, the composition of cattle fed for specific markets has moved from 20% domestic/80% export, to 40% domestic/60% export.
Supermarkets draw 40-50% of their meat supplies from feedlots.
The food-service sector draws 30-40% of product from the feedlot sector, projected to increase over the next five years.
Meat & Livestock Australia (MLA) is a producer-owned company that provides services to livestock producers, processors, exporters, foodservice operators and retailers. It has around 34,000 livestock producer “members” with stakeholder entitlements in the company.
MLA is primarily funded by transaction levies paid on livestock sales by producers. Processors and live-animal exporters also pay levies under contract to MLA. The money raised is invested in the industry to assist in research and development, marketing and market-access activities. Income from the levies is also distributed among Animal Health Australia and the Australian National Residue Survey.
The Australian federal government matches each industry dollar spent in research and development. This is supplemented by cooperative contributions from individual processors, wholesalers, foodservice operators and retailers.
Last August, following an industry-wide ballot, the Australian government approved an increase in the cattle-transaction levy from $3.50 to $5/head of cattle sold as of 2006. The increase will be re-evaluated in 2010.
“Producers and government share industry concerns that low-cost producers such as Brazil, and the return of the U.S. and Canada into the international marketplace, could cut into Australian exports and reduce the prices paid to our beef producers,” says Queensland producer Don MacDonald. “The cattle industry will need to boost its marketing efforts in the coming years if it's to remain competitive.”
Transaction levies are levies charged on the sale of livestock (cattle, sheep and goats):
- On-farm cattle $5/head (AUD)
- Grain-fed cattle $5/head
- Bobby (veal) calves $0.90/head
- Sheep 2% of sale price (to a maximum of $0.20)
- Lambs 2% of sale price (to a maximum of $1.50)
- Goats $0.38/head