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Aussie Predictions Shed Light On U.S. Beef Situation

The past five years have been extraordinary for the Australian beef industry. Peak prices were probably set in mid-2005, with the prosperity offsetting the effects of unprecedented nationwide drought. The Aussie beef industry though, expects its window of prosperity to begin narrowing. Yet, prices and prosperity will be buoyed by a number of key factors: Cyclically low U.S. production and sustained price strength in beef prices will encourage imports into the U.S.

The retention of additional market share in the Pacific Rim due to weak U.S. market presence.

Strong domestic beef demand and constrained domestic supplies. But with global competition heating up and U.S. domestic beef prices softening due to rising production, here's what the Aussies are expecting of the next several years, according to Meat & Livestock Australia: U.S. beef will reenter Japan in July 2006 -- reaching 30,000 metric tons (mt), for the remainder of 2006, or 25% of second-half 2003 levels and 40% (105,000 mt) of previous annual supply in 2007.

Canadian beef exports to Japan, which reentered Japan in December 2005, will reach 50% (10,000 mt) of pre-BSE levels by the end of 2006 and 75% (15,000 mt) in 2007.

U.S.-Japan import protocols will be renegotiated in 2008, with adoption of world animal health organization (OIE) 30-month rules allowing the U.S. to return to 90% (240,000 mt) of previous supply by 2009.

Japanese beef consumption gradually recovers from BSE scares, approaching 2000 levels by 2010.

U.S. boneless beef from under-30 (age-verified) cattle will reenter the Korean market in 2006 -- reaching 50% (75,000 mt) of pre-BSE levels by the end of '06, and 75% of previous supply in 2007.

The U.S. border will reopen to Canadian "cow beef" (but not animals 30 months and older) from the third quarter of 2006. This will cause significant quantities of Australian cow beef to divert away from the U.S.

Argentine beef will reenter the NAFTA market in January 2008 (with a 20,000 mt U.S. tariff rate quota). Brazilian beef will remain banned by NAFTA countries through the projection period (2010).

Total Aussie beef exports to the U.S. in 2006 will increase 13% over 2005 to 363,000 mt, 6,000 mt below the quota.

Composition of Australian beef exports to the U.S. will continue to be about two-thirds lean trimmings and one-third whole-muscle cuts.

Under the U.S.-Australia Free Trade Agreement, beef exports to the U.S. will remain below the 2007 quota (398,214 mt) and 2008 quota (413,214 mt), but could reach expanded quota levels before the end of the decade.

Competition from Brazil will be fierce in non-NAFTA markets, leaving Australian beef uncompetitive except in the higher quality end of the market. -- Clint Peck