US Cow Herd Decline Australia's gain

A BIGGER than expected drop in the US herd may offer a small reprieve for Australian beef exporters facing falls in Japan and Korea, analysis suggests.

The US industry is still reeling after a USDA report counted beef cattle numbers at their lowest in 60 years.

In its twice-yearly cattle report, the USDA pegged cattle and calves in the US as of January 1 at 90.8 million head, 2.1 per cent below the 92.7m a year ago and the lowest January 1 inventory of all cattle and calves since the 88.1m on hand in 1952.

Analysts, on average, were expecting the inventory decline by about 1.7pc.

Beefcow inventories, a major source of grinding beef for the American hamburger chains, declined by 3.1pc, 0.3pc more than what previous analysis was anticipating.

The USDA also reported the 2011 calf crop at 35.3m head, down 1pc from 2010 and the smallest calf crop since the 34.9m born during 1950.

Calves born during the first half of 2011 were estimated at 25.7m, down 1pc from 2010.

Even before figures from the January audit were released, the USDA was forecasting total beef and veal production for the US would decline 5pc on the previous year, to 11.322 million tonnes carcase weight.

To put this in context, the decline of 560,000 tonnes cwt is more than one-quarter of Australia's annual beef production.

The plummeting cattle numbers in Australia's second biggest exportmarket, accelerated by drought and forage shortages, translate into positive news for Australian beef producers and exporters, according to MLA chief economist Tim McRae.

"The first effect we'll see is that there will be pressure on their cattle prices and as the US still sets the tone for prices elsewhere across the world, over the longer term we should see Australian prices follow suit," he said.

"The most significant number for me is their decrease in cow numbers.

"This will affect their ability to produce lean, grinding beef, which Australia can fill the gap on quite nicely when the world demands it.

"They are also holding on to their heifer replacements so we should see their herd stabilise, but as their supplies tighten their production will be affected and their import demand should increase.

"These are all good signals for Australian producers."

Even if the seasons improve this year, production declines in the US will continue for at least the next three years, according to the USDA report.

As its author notes, improved seasons could see heifer retention continue and accelerate, which will see US beef production decline further over the next few years as those females are removed from the supply of feeder cattle.

If, for example, producers begin retaining more heifers in 2012, those heifers will not be bred until 2013 and will not deliver their first calves until 2014.

Those calves will not reach finished weights and contribute to beef production until 2015.

The latest figures accord roughly with MLA's outlook for Australian beefexport prospects to the US over coming months.

After a decade of declining shipments, Australian beef and veal exports to the US are forecast to increase in 2012, attracted by historically high prices for manufacturing beef and on the foundation of a very tight supply of beef in the US.

As Mr McRae noted in his recent Cattle Projections report released, Australian shipments are anticipated to increase 28pc on 2011, to 215,000 tonnes shipped weight.

This will make the US one of Australia's fastest growing beefmarkets. While the forecast tonnage is still a historically low volume, it leaves plenty of scope for further increases in subsequent years, Mr McRae notes.

There are some major hurdles for Australian exports to the US in 2012, including the fragile state of the US economy and weakened consumer spending, the high A$ and increased E.coli testing requirements that have been sparked by recent food safety scares with locally grown product.

Based on several trends, if Australian exporters are to make inroads in the US this year - to improve on last year's decline of 9pc, the lowest annual total since the late 1960s - then the revival will come through grinding beef and not primal cuts based on historical trends.

As Mr McRae notes in his report, the decline in shipments to the US over the past decade has been due to many factors, most notably the A$, but the fall in the past 12 months has been assisted by burgeoning demand for manufacturing beef in other markets.

Manufacturing beef shipments made up 62pc of Australian beefexports to the US in 2011, similar to the proportion in 2010.

The majority of other exports for the year were thin flank (12pc), topside/insides (8pc), shin/shank (5pc) and silverside/outsides (4pc). Frozen beef made up 83pc of total exports for the year.