Set your game plan for a lower cattle market and dryer times: Rabobank report

Key to getting the game plan right at this stage seems to be perspective.

Experienced consultants and analysts continue to make the point that while the cattle market is now on track to be a solid third down on average this year compared to last year, prices are high in relation to longer-term averages.

Further, beef farm margin drops will not parallel the cattle market drop due to increased turnover now that herd numbers are back up, along with the likelihood much of the steam in the input cost hikes of recent years has been exhausted.

Rabobank's Australian Beef Seasonal Outlook, released today, argues the return to more normal trading conditions in beef, and the resulting market stability, will have an upside.

Cheaper cattle will improve Australia's competitive position in export markets and less price volatility will allow supply chains to rebalance, senior animal proteins analyst Angus Gidley-Baird wrote.

That adds up to potential for beef producers to capitalise on some very lucrative opportunities on the global scene: The gaps emerging from fast-decreasing United States cattle supply, demand for high-quality beef by a growing middle class in Asia, a free trade arrangement opening doors in the United Kingdom and the fact that consumers appear to be remaining loyal to beef against economic downturns.

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Rabobank is forecasting cattle prices to now hover in a relatively narrow band.

It says current prices are more in balance with market fundamentals.

If that plays out, the average EYCI for 2023 will be 30 per cent below the 2022 average.

Other analysts, and agents, have put the 2023 market decline in a similar range.

An end-of-year EYCI in the vicinity of 640c has been widely touted and many are still putting their money on that figure.

"We expect other classes of cattle to experience a similar price trend, although the price spread between restocking cattle and finished cattle will narrow as dropping producer demand will see the premium for young stock decline," Mr Gidley-Baird said.

While rising cattle prices were great for producers, the system was now working its way through some very expensive cattle in a softer consumer market and the supply chain was bearing those costs, the Rabobank report said.

This is on top of the price squeeze carried over from the period when cattle prices rose faster than beef prices, it said.

"Our forecast of a more stable price range for 2023, once we have cleared the expensive cattle, will create a more sustainable situation for everyone in the supply chain," Mr Gidley-Baird said.

Knowing that, and also that a strengthening El Nino toward the middle of 2023 is coming, producers should be planning, the Rabo report suggests.

Are there on-farm investments that would help mitigate the challenges of drier conditions? Can cattle numbers be managed to maximise pasture? Could strategies like leasing, agistment or fodder production be put in place to manage low feed supplies, the report asks.

While returns are good, now is the time to put some of these measures in place, it said.

One underlying positive fundamental for the beef business is the ongoing strength in demand.

The report painted a positive picture of demand for beef against the backdrop of rising costs of living and economic struggles.

It forecasts Australian per capita consumption of beef to fall in 2023 by 1.6pc after increasing in 2022 to an average of 23.8 kilograms per person per year. Adjusting for population growth, that delivers a domestic consumption increase this year of 1pc.

"For consumers, the legacy of COVID and memories of lockdown, low perceived risk of unemployment, plus some additional savings may be just enough to patch over some of the more severe impacts of the adverse economic climate," Mr Gidley-Baird said.

"Despite slower economic conditions, beef demand has held up relatively well."