CATTLE prices will be reliant on the weather, with prices expected to ease below 2019 levels without meaningful rain, according to the Rabobank's Australian 2019 Beef Cattle Seasonal Outlook.
But the report said, good seasonal conditions could also lead to prices jumping as much as 20 per cent.
The Australian cattle herd is at a 20-year low, with report author, Rabobank senior animal protein analyst Angus Gidley-Baird saying this has led to a market that is sensitive to change.
"Any meaningful rain, particularly in Qld and NSW, would see beef producers - in addition to feedlots and processers - jump back into the market to buy cattle from what is a very limited pool," he said.
"This could see prices rise by more than 20pc."
But should the season remain drier than normal, Mr Gidley-Baird says, prices would ease and remain below 2018 levels - with Rabobank modelling predicting an Eastern Young Cattle Indicator of between $4 a kilogram and $4.50/kg throughout 2019.
"While dry conditions would force additional sales and reduce producer demand, there is still much more upside potential for prices, rather than downside," he said.
"It just all hangs on how much falls out of the sky."
Mr Gidley-Baird says Australian cattle slaughter numbers are forecast to contract by 5pc in 2019 - assuming drier than average seasonal conditions though an improvement on last year.
"With this contraction driven by lower female slaughter rates - as producers hold onto more female stock - any improvement in the season would see slaughter numbers fall back further," he said.
Mr Gidley-Baird said these predictions were based on seasonal forecasts showing a dry season ahead.
"Our modelling has been based on the assumption seasonal conditions will remain drier than average, driving down slaughter numbers and yarding volumes, by 5pc and 2pc, respectively," he said.
"If this scenario eventuates, an average EYCI of $4.28/kg is forecast, a 16pc drop on last year."
That said, the prices of heavier cattle classes are expected to remain firm, he says, underpinned by limited supplies of heavy cattle.
"While the model suggests prices will head lower this year, any rain that allows producers to hold onto their cattle or come back into the market to buy cattle, will see prices head one way - and that way is up," he said.
"There is simply not enough cattle in the system and, coupled with strong export fundamentals, there is much upside for prices."
Mr Gidley-Baird says seasonal conditions in Qld and NSW will have the greatest bearing on the domestic cattle outlook, with dry conditions potentially forcing producers to offload more stock throughout 2019.
"With many areas, particularly in Qld, reporting lower breeder numbers, calf numbers will be down this year and this will continue to limit production prospects," he said.
He said the drop in production had been compounded by the Qld floods - affecting a vast area accounting for about 17pc of that state's herd of about one million head.
"While the precise numbers of stock lost will not be known until musters are completed, there is the real possibility for losses to amount to 500,000 head," he said.
"In the northern areas of the flood zone, which is generally considered breeding country, the loss of breeding cattle will have a bearing on calf production not only this year, but in years to come."
"In the southern areas - representing more growing and fattening - we will see a reduction in the number of finished cattle available for slaughter over the next 12 months."
Mr Gidley-Baird said the number of female cattle, in particular, were down, which could prolong any rebuild process.
"But should we get a turnaround in the season, there will be a strong appetite to begin rebuilding herds," he said.
Export markets Australia's key export markets are expected to remain strong, Mr Gidley-Baird says, with trade flows increasingly focused on Asia.
"Last year, Japan, South Korea and China took 58pc of Australia's beef exports, representing the equal highest proportion in over three decades," he said.
While Australian exports to Japan and South Korea grew by 8pc and 15pc, respectively, Mr Gidley-Baird says China accounted for the biggest increase, at 48pc.
"The growing demand for protein in China, extenuated by the shortage in pork production due to African Swine Fever, has seen China increase its share in global beef markets," he said.
"The shift in focus to Asia has big implications for the Australian cattle market, as what happens in their markets will now have as much bearing as the United States, which has traditionally been the price setter in the market."
Mr Gidley-Baird says while the demand fundamentals in Asia are expected to remain strong, there will be increased competition in these markets from the US.
"The US also increased their beef exports to Japan and South Korea, with a further increase expected this year, as the US grows its beef production by a further 2pc," he said.
"This will not only see Australia compete head-to-head with the US, particularly in South Korea, it will also limit the upside for Australia's import volumes into the US."