“Australia’s cattle herd is bigger than it’s been in 35 years and the industry is seizing the export opportunities presented by shrinking beef production of Australia’s major competitors,” said NAB Agribusiness general manager Khan Horne.
“The outlook for the Australian beef industry is solid and the wettest two years on record have supported the herd re-building effort.
The Australian herd is at its highest level since 1977 at 29.6 million head and set to keep growing,” he said in a statement issued today.
Australian beef production is forecast to increase 2.5 percent in 2012, accelerating to 3.3pc in 2013, driven by the larger herd numbers and strong seasonal conditions.
At the same time, exports are expected to remain robust despite the challenges of the high AUD and weaker economic conditions in some markets.
In the medium term Australian prices are likely to be influenced by a number of competing factors.
“Import demand for beef is rising in the US, Middle East and South East Asia. In addition, the AUD is forecast to weaken which will make Australian exports more competitive," Mr Horne said.
On the other hand there will be a short term increase in the supply of US beef in global markets, as producers impacted by the drought offload stock.
This is likely to be coupled with a weak consumer sector in major trading partners.
"The net impact of these factors will see Australian price levels holding at 10pc above the decade average,” he said.
The industry will be closely watching the impacts of the US drought on the beef market in the coming months.
The drought will contribute to the US becoming a net importer of beef in 2013, in a switch that bodes well for the Australian beef industry.
"The drought is having a severe impact on global agricultural prices. Based on current NAB projections for 2012-13, we expect around $6 billion to be added to Australian net farm incomes at current production levels."
In the short term this will mean increased beef production as farmers turn off more cattle to maintain cash flow.
However, recent USDA forecasts estimate total US beef production and exports will contract in 2012 and the US will increasingly rely on imports to fill their needs. Imports of beef into the US are set to increase almost 20pc in 2012.
In stark contrast to weaker demand conditions in Japan and Korea, the US has been a key source of income for the Australian beef sector recently.
"The US is a very important and growing market, however in our view there is still some risk evident in the consumer sector, with the slow recovery in economic conditions impacting demand for protein and a switch to cheaper meats and cuts," Mr Horne said.
This has meant a fall in per capita beef consumption in the US from 42.5kg in 2007 to 37.3kg in 2011, and the USDA forecasts further falls to 36kg in 2012.
While there have been some declines in volume to Japan, Korea and Indonesia, they remain key markets and declining export volumes have been more than offset by growing exports to the US, China, Taiwan, Singapore, Middle East and Malaysia.
Across other commodities, the impact of the US drought has certainly been felt in the Australian farm sector.
The NAB Rural Commodity Index rose 5.3pc in AUD terms in July, completely reversing the fall in the Index evident since January.
A strengthening AUD throughout the month did manage to take some of the icing off the cake, with the Index rising 8.2pc in USD terms in the month.
In AUD terms, price rises were recorded across most commodities with wheat leading the way (up almost 25pc).
Sugar, lamb, beef and barley also recorded prices increases. Partially offsetting this were falls in dairy and cotton, while wool prices were flat.