Agribusiness Newsletter June 2009
Contents
Meat Industry
- Mutton prices at record highs may impact processor's profitability
- Lucrative market for high quality beef cuts in doubt
- Northern beef supplies at record levels in contrast to the southern supplies
- Beef traceability underpins demand for beef
Wine Industry
- Leaders say it was wise not to increase wine taxes in the budget
- Increases in US bottled wine sales may help counter losses in the UK?
- Small Australian wineries are focusing sales drives on small US cities
- It is a bonanza for domestic consumers, although it won't last long
- News from the UK is not all doom and gloom
- Riverland growers to lobby the PM this month for a realistic rescue package
Fishing Industry
- Strong national and international support for new SA tuna breeding venture
- Penalties are serious for pulling the wrong lobster pots
Dairy Industry
Grain Industry
Other
- Despite MIS collapse, agribusiness listed sector outlook positive
- Twynam Group $303m water sale to Government
Meat Industry
Mutton prices at record highs may impact processor's profitability
- Mutton prices, now in excess of 250 cents/kg, have hit record highs. Caused predominantly by dwindling supplies, these high prices are expected to hold through the winter.
- However, national slaughter statistics show that this year’s January to April slaughter numbers are up 10,000 on the same time last year. According to some industry experts, high slaughter numbers are the result of processors desperate to keep abattoirs open, rather than profitability in the market.
- The question is how long can abattoirs maintain this strategy as record high prices throughout winter are bound to erode what little margin there was in the slaughter of sheep. Processors’ profitability will also be impacted by the recent rise in the Australian dollar.
- The above combined factors could result in some processors extending the normal winter shutdown period, or even resulting in permanent closures.
Lucrative market for high quality beef cuts in doubt
- Most experts in the field agree that Australia’s ability to continue selling high quality beef into the Japanese and Korean markets is under threat. According to Mr Troja, general manager for Rockdale Beef, “We’ve still got about an 80% share of the imported beef market into Japan, but I think the next three to five years you will see that share go down to 50% or about where it was”.
- Factors that support this prediction include:
- tough economic conditions in Japan, following the global financial crisis;
- ageing Japanese population and attitude towards beef. Latest Japanese beef consumption figures for March fell by 0.8% and actual consumption of imported beef was down 4%;
- the USA will most likely be able to negotiate a deal that will allow them to sell beef into Japan from cattle aged 30 months and younger. Currently this is restricted to cattle aged less than 20 months, as a safeguard against Bovine Spongiform Encephalopathy (‘BSE’). Despite the above, US beef sales into Japan have risen significantly. For example, US beef to Japan was up 42% in March in comparison to the same time last year;
- the likely free trade agreement between the US and Korea will result in the removal of tariffs on beef, thus giving the Americans a price advantage compared to Australia; and
- the recent strength in the Australian dollar will put further pressure on exporters.
- As a result of the above, one of southern Australia’s largest feedlot and meat exporters is slashing throughput and jobs in a bid to survive this crisis. Riverina beef exporter, feedlot and abattoir, Rockdale Beef, recently announced it would cut 150 jobs and slash its beef throughput by 40% due to weakening demand from major international buyers of grain-fed products.
- The loss of jobs are mainly connected with the abattoir, which has cut production back to a single 8 hour shift, 5 days per week. Rockdale was planning to hold the number of cattle on a 150-day feeding program at 25,000.
- The latest quarterly survey, conducted by the Australian Lot Feeders’ Association, showed a further 10% drop in the number of cattle now on-feed. The feedlot sector has been in decline since 2006.
Northern beef supplies at record levels in contrast to the southern supplies
- Despite falling export sales of beef, predominantly to the high value markets of Japan and Korea, Australian beef production has been high this year, ensuring more supply at a time of less demand.
- Processors slaughtered 1.9 million adult cattle in the three months January to March this year, the second highest start to a kill in almost a decade.
- High slaughter numbers, combined with heavier carcasses pushed production for the quarter to 522,679 tonnes, the second highest start to the year since Australian Bureau of Statistics began collecting records.
- Queensland slaughter rate for the quarter was up 11% to 480,139 and carcass weights up to 27kgs after a good summer.
- These high numbers are in contrast to the impending cattle shortage in southern Australia. For example,
- supply of heavy steers in Victoria was down 7%.
- Further concerns for southern processors is that the outlook for cow beef this winter is clouded by the increasing Australian dollar and the likelihood of higher female kills in the US, as they cull dairy cows. Reports out of the US, say it will involve the slaughter of about 103,000 dairy cattle before August, or about 10,000 head a week over the next 10 weeks.
- Meat Livestock Australia said “This boost in the US cow kill could affect prices for imported grinding beef, although this could be offset by lower female slaughter numbers in Australia this winter if the season breaks properly”. Ultimately, cattle supply, and the performance of the Australian dollar, will be the two biggest factors that will dictate saleyard prices for cows in the next three months.
Beef traceability underpins demand for beef
- In May, Greenhams’ Smithton beef processing plant in Tasmania, launched a new traceability system that allows consumers to trace the source of cattle, through a website, down to four to five farms.
- The website outlines the breeding of the cattle, location of the farm, pasture types and the fact that the cattle were not fed GM-products or hormones.
- According to Mr Greenham, next month the initiative will be refined, following the redevelopment of the boning room, to allow consumers to trace each piece of meat back to a specific farm. A similar system is currently in place at Nippon Meats, Queensland.
- According to Mr Greenham, Korean demand for Greenham beef remains fairly stable, thanks to strong relationships with major supermarket chain, Lotte Mart and initiatives such as this new traceability system.
Wine Industry
Leaders say it was wise not to increase wine taxes in the budget
- Leaders say it was wise not to increase wine taxes in the budget
- The consensus is that in resisting a mainstay temptation, namely to hit predictable targets to raise money, the Government has, particularly in current economic circumstances, acted in the best interests of both the wine industry and the many thousands of people whose livelihoods depend upon it.
- In any case, producers say any change now in the industry’s tax regime wouldn’t make sense when the Henry Review (the Government’s own tax inquiry) has yet to present its findings.
- It’s generally accepted among wine producers that to deal with an oversupply of grapes, sharply reduced market share and profitably nationally and internationally, the $5bn industry has to be ‘shrunk’ by a fifth.
- Accordingly, to stay competitive, Constellation Wines Australia is pulling 180ha of SA vines owned, managed or leased at Clare, Coonawarra, Padthaway and on the Fleurieu Peninsula. Fosters has put more than 30 of its vineyards on the market, and other companies are effectively ‘mothballing’ their vineyards to await better times.
- Winemakers Federation chief executive Stephen Strachan says, “producers should use the break from tax increases to restructure an industry that needs to see far less fruit being turned into wine”.
- However, nobody in the industry seems too fussed by the Budget closing a loophole that might otherwise have tempted unscrupulous winery owners to circumvent proposed Alcopop legislation by injecting surplus, highly spirituous wine into flavoured pop drinks, and thus trying to create new markets.
Increases in US bottled wine sales may help counter losses in the UK?
- Given the global economic climate, our earlier reported rise by the Australian Wine and Brandy Corporation (‘AWBC’) of Australia’s moving annual total (‘MAT’) exports to the UK, the first increase of its kind since October 2007, offers little joy, despite it being somewhat of a surprise.
- The MAT data has been strongly influenced by a 23ml rise to 87.2ml in low-margin bulk wine exports in the first three quarters of the financial year, but bottled wine sales to the UK, our biggest export market, dropped 20% to 145ml.
- The AWBC expects that by the end of the financial year a further downturn in Britain’s economy, combined with increased UK alcohol taxes and our rising dollar, will see an even more marked decline in bottled wine exports.
Small Australian wineries are focusing sales drives on small US cities
- Longview Vineyard, a small Adelaide Hills company, and Barossa Valley premium winemaker Kaesler, have respectively earmarked for US markets 25% to 30% of total production, expected this year to be 18,000 cases for Longview and 25,000 for Kaesler.
- These decisions follow AWBC figures showing early signs of improvement in the US market for quality bottled wine, despite the recession, and in the face of strong price-led competition from Argentina, Chile and Spain.
- Longview sales manager Peter Saturno says he believes small premium wine producers who focus their selling on small US cities, will win shelf space from big Australian wine firms’ brands, because US supermarkets don’t have the same overwhelming power over wine marketing as their counterparts in the UK.
It is a bonanza for domestic consumers, although it won't last long
- The world’s prevailing economic climate is compelling retailers here to halve normal prices of quality wines in order to generate sales.
- Best bargains include out-of-favour blends, back vintages, wines where export markets have collapsed, and New Zealand sauvignon blancs resulting from successive record harvests and over-planting. But consumers’ opportunities will be short lived because progressively less wine was produced in Australia in 2007, 2008 and this year.
- While recognised brand wines that are highly regarded tend to maintain their prices, very good wines with unfamiliar names that are no longer commercial, can be bought for $9.99 a bottle, although once supplies of 2004, 2005 and 2006 vintages have been exhausted, wine prices will rise suddenly across the board.
News from the UK is not all doom and gloom
- Mr Matthew Jukes has won The International Wine and Spirit Competition’s Trophy for Communicator of the Year, writes best selling wine guides in the UK and Australia and is an internationally respected wine judge.
- Mr Jukes has just published for trade buyers and consumers alike, his sixth Australian Wines Hot List of our best 100, declaring that, “in no other country has he encountered such a range of diversity, innovation and the ability to deliver across such an extreme range of price points.”
- What’s more, he said that while the list was “always a cracker”, this time it was incredibly difficult to compose. Any one of another 100 wines could conceivably have won a place on the list that included, as well as the expected big names, “smaller producers who have conjured subtlety and nuance into their offerings with world class élan”. (To see the list, go to www.matthewjukes.com )
Riverland growers to lobby the PM this month for a realistic rescue package
- This region (producing 401,000 tonnes of grapes annually) grows more than six times Barossa Valley’s harvest, its nearest competitor as a grape-growing region.
- Riverland growers, arguably hardest hit by drought, are universally dissatisfied with the assistance package the Government is offering those who want to quit the industry.
- Accordingly, a group representing the Murray Darling Association and other key Riverland industry organisations expects to meet Mr Rudd this month, seeking a package that takes into account of extra costs faced by irrigators (for example, to clear land and pay out irrigation providers for abandoned infrastructure).
- Growers want a package that allows them to meet such expenses, and not be destitute when they quit the industry.
Fishing Industry
Strong national and international support for new SA tuna breeding venture
- Clean Seas Tuna chairman Hagen Stehr says he’s “very encouraged by the depth and extent of support” for the company’s $23.9m equity raising to help fund commercialisation of its southern Bluefin Tuna breeding program at Arno Bay on SA’s Eyre Peninsula next summer.
- The raising includes $13.1m through placement and $10.9m through an underwritten (1-for-8) rights issue, both at 55c a share.
- Commitment by majority shareholder Australian Tuna Fisheries, part of the Stehr Group, to take up $5m of its entitlement under the rights issue will lead to a cut in Clean Seas’ stake in the venture from 54.65% to $47.36%.
- The other $5.9m of entitlements has been under-written by Lonsec, and the issue became available to shareholders on May 20.
- Mr Stehr says the cornerstones are now in place for “a major food business for the future”, and what’s been achieved by breeding tuna in captivity is “nothing short of a miracle”.
- He says Clean Seas tank-bred tuna have the potential to weigh 10kg in their first year, 20kg in the second and up to 50kg in the third, although it’s likely the company will sell the first of them at about 2kg next Easter.
Penalties are serious for pulling the wrong lobster pots
- Pull lobster pots that aren’t yours is illegal, even if they belong to friends or family who aren’t there but have given you permission.
- Law breakers may lose their boats, the right in future to register recreational rock lobster pots, be prevented from using rock lobster pots for up to five years, and from engaging in any type of fishing activity for three years.
- PIRSA Fisheries Officers have impounded the vessel of a 41-year-old Tantanoola man, along with seven lobster pots and 37 rock lobsters, following investigations into his fishing activities in Lighthouse Bay near Carpenter Rocks.
- PIRSA Fisheries Regional Manager, Limestone Coast, Mel Snart says “only the holder of a current registration for pots can pull them, and only two pots will be registered to a person”.
Dairy Industry
Milk price a hot topic
- Barely a year ago dairy prices were so high, milk was being likened to ‘white gold’. But the market has since turned sour, with the global financial crisis slashing international dairy prices and Australian farms are suffering.
- Prices paid to dairy farmers vary. Farmers who supply local markets on contract have not yet had price falls, while others report a milk cheque for April this year that was 65% of their
- April 2008 cheque.
- The cents per litre (‘c/L’) farmers will receive next season has overtaken climate and import costs as farmers’ largest concern, as many come to grips with this year’s history making mid-season price step-down.
- Dairy Australia recently forecast expected farmgate prices in Australia as follows:
Grain Industry
Promising start continues
- The promising start to the grain season has continued with good falls of rain being recorded across large areas of South Eastern Australia in the first weeks of June. Reports being received from some areas in the Wimmera and Mallee cropping districts confirm growers are experiencing the best start to a season for up to 13 years.
- The arrival of cold weather across South Australia has further lifted hopes of more normal Winter rainfall across the grain belts. However, a note of caution has recently been sounded by the Department of Agriculture, which has highlighted that seasonal forecasts issued by the Bureau of Meteorology are not sufficiently accurate to be used by farmers. This revelation has led farmer representatives to call for increased funding for research, in an effort to improve the accuracy of longer range forecasting in Australia.
Grain prices improve
- Movements on the world grain markets have led to improvements in local prices being offered by exporters, despite a strong appreciation of the Australian dollar in recent months. In terms of the overall level of prices received by wheat producers, the Federal Government has recently claimed that growers have enjoyed higher prices as a result of the deregulation of the bulk export market.
- The prospect of a reasonable cropping season and higher prices is also leading many growers to consider their marketing options earlier than perhaps would otherwise be the case, with activity in the forward sales market increasing in recent weeks.
Other
Despite MIS collapse, agribusiness listed sector outlook positive
- The May Commonwealth Bank Agri Indicators Report reveals that the Australian listed agribusiness sector has continued its strong performance delivering a return of 3.7% in the month to May 15, compared to an almost flat result of 0.8% for the broader S&P/ASX 200 accumulation index.
- This report comes in light of the recent collapse of several Managed Investment Schemes (‘MIS’) where thousands of investors who borrowed money to make MIS investments are required to pay back their loans on investments that have lost most or possibly all of their value.
- Following the recent collapses of MIS, several financial planners have suspended investments in the MIS sector weeks before critical fund-raising ahead of the end of the financial year.
Twynam Group $303m water sale to Government
- The Federal Government completed the single largest purchase of water for the environment in Australia’s history, purchasing 240 gigalitres of water entitlements from The Twynham Agricultural Company for $303m.
- That is equivalent to one half of all of the water used in Sydney each year.
- This brings the total amount of water purchased by the Government to 297 gigalitres of water entitlements, according to a statement from Minister for Climate Change and Water, Senator Penny Wong. The Commonwealth Environmental Water Holder will manage the water entitlements purchased from Twynam and will be used to restore the rivers and wetlands of the Murray-Darling Basin back to health, with the water used exclusively for environmental flows.
- The latest major Commonwealth water purchase from NSW has raised concerns with no other purchases in other States or forcing the removal of trade restrictions that other States have in place.
- The sale of $303 million worth of Twynam’s water to the Federal Government was because of the Kahlbetzer family’s desire to diversify its Australian business operations. Twynam says its large water sell-off will not cause substantial changes to its operations and does not signal a complete move to dryland farming.
- Twynam will hold licences for sustainable groundwater resources and will maintain further flexibility by retaining River Water Access Licences to enable access to its entitlements and temporary river allocations.
- A water purchase of the magnitude of the $303m Twynam water buy-back will have huge flow-on impacts for agricultural production and regional communities, the National Farmers Federation (‘NFF’) has warned today.
- With the drought taking a hefty toll on food production, supplementing water for production and the flow on regional community benefits this delivers, must be of the highest priority, the NFF said.
Contacts
SydneySteve Parbery t +61 2 8116 3000 Andrew Smith t +61 2 8116 3060 Level 46 t +61 2 8116 3000 BrisbaneGrant Sparks t +61 7 3371 7244 Level 3 t +61 7 3831 2700 AdelaidePeter Macks t +61 8 8211 7800 Level 10 t +61 8 8211 7800 | MelbourneJoe Dicks t +61 3 9653 6209 Rod Slattery t +61 3 9653 6204 Level 10 t +61 3 9654 1517 PerthSimon Theobald t +61 8 9382 8933 Level 10, Parmelia House t +61 8 9382 8933 Port MacquarieDavid Leigh t +61 2 6580 0400 Level 2 t +61 2 6580 0400 |
