* Australian meat processors running at near capacity
* Cattle slaughter rate hits record due to severe drought
* Will likely drive Aus beef exports beyond record already
By Colin Packham
SYDNEY, Feb 28 Normally at this time of year
Australian meat processors are operating part time as cattle
gorge on summer grass.
But a scorching drought has forced farmers to cull cows as
pastures wither, driving processors to work flat out and likely
pushing beef shipments in the world's third-biggest exporter
beyond record levels already touted.
Slaughter rates have hit three consecutive weekly highs,
which could prompt the Australian Bureau of Agriculture and
Resource Economics and Sciences (ABARES) to raise its forecasts
on beef exports in a closely watched report issued on Tuesday.
New evidence of rocketing shipments from Australia will drag
on global prices. U.S. live cattle futures marked record
peaks this year after the U.S. herd was pegged at its lowest in
over six decades and with the northern hemisphere in the grips
of a savage winter.
While beleaguered Australian farmers grapple with local
cattle prices at four-year lows, abattoirs are earning fat
margins by selling onto Asian markets hungry for beef.
"Normally at this time of year, there has been rain and
processors are running at fewer days as they are having trouble
sourcing cattle," said Tim McRae, senior economist at industry
body Meat and Livestock Australia (MLA). "But at the moment,
it's the complete opposite."
ABARES in December forecast beef exports would rise 7
percent in the 2013/14 marketing year that began in July to a
record of 1.085 million tonnes, accounting for just under half
of national beef output.
But the increased supply of meat on the back of a drought
entering a second year should push exports beyond that figure,
with Australia's agriculture department, which collates historic
data, saying shipments in the first half of 2013/14 climbed 18
percent from the year before to 668,755 tonnes.
"While I'm not sure exports can sustain that pace, ABARES
could increase its estimate," said MLA's McRae.
Longer term, the drought could spell beef shortages due to
reduced breeding stock and provide fewer cattle for
Asian demand for beef is soaring as increasingly affluent
middle classes develop a taste for high-protein Western diets
and fast-food such as hamburgers.
Pan Chenjun, senior analyst at Rabobank in Beijing, says
beef in China's retail market is priced at 61 yuan ($10.06) per
kg, way above the rate Australian processors are paying for
cattle at about A$3 ($2.71) a kg.
"Beef prices in China are already quite high and in the
longer term we don't expect prices to decline as there is a
shortage in the domestic market," she said.
"The shortage is mainly due to lower domestic production,
imports are increasing very fast but imports can't cover the
The weaker local dollar makes Australian beef
particularly appealing, analysts said. The currency fell more
than 15 percent against the U.S. dollar in 2013 and is nearly
unchanged this year.
"Cattle came strongly into the market in 2013 and that has
continued into this year as well, while on the other side there
has been strong demand from key markets like China," said Matt
Costello, Rabobank animal proteins analyst. "Processors have
been winning at the expense of the farmer."
Meat processors would not disclose processing margins, but
analysts said the difference between beef processors' costs and
revenues had touched highs of around 20 percent in the current
marketing season, way above the 1 or 2 percent seen typically.
"We will be at near capacity until at least April," said an
abattoir manager, who declined to be named.
Australian meat processors tend to be small or medium-sized
businesses, although a unit of Brazil's JBS, the
world's biggest meat producer, operates in the country.
($1 = 6.0641 Chinese yuan)
($1 = 1.1080 Australian dollars)
(Additional reporting by Naveen Thukral; Editing by Joseph