LIVE cattle exporters and lot feeders are faced with a bleak outlook in 2012, when compared with other sectors of the industry.
After a tumultuous 2011, Australia's live cattle industry is poised for more turmoil during the next 12 months with Indonesia, its largest but most difficult customer, framing the trading environment.
With the Indonesian Government announcing that it will limit the allocation of live cattle import permits in 2012 to 283,000 head, Australian producers may again face the challenge of finding other markets for cattle that do not make the Indonesian trade.
While some Middle Eastern markets may be able to take additional cattle in 2012, there is no live export market that will be able to accommodate the additional cattle that would have otherwise have gone to Indonesia.
The most likely outcome, says MLA's Tim McRae, is that additional cattle that do not make the livestock export trade will migrate slowly towards beef processors ? as they did in 2011 when the Federal Government banned the trade for a month.
"Given the very high transport costs of moving cattle from northern Australia to eastern and southern feeder and slaughter markets, the displacement of live export conditioned cattle will take its toll on the viability of northern beef producers in 2012," Mr McRae said.
While any overflow of cattle out of the north may ease supply tensions in the south, the outlook for the Australian lot feeding sector remains tough heading into 2012.
On the input side of the equation, the historically high cost of suitable cattle, with competition fierce between all buying sectors for young cattle, provides an ongoing restraint to throughput.
In 2011, producers were able to outbid lot feeders for suitable lines, most with additional feed - a situation that could be repeated in 2012.
In 2011, feeder cattle prices averaged 6-13 percent higher than in 2010, with some categories registering their highest calendar year average on record.
In contrast, fed (or finished) cattle prices (100 days) averaged 5.5pc higher for the year, while grain prices were largely steady on a calendar year basis.
However, some welcome news for lot feeders is the forecast of abundant feed grain supplies heading into 2012, with prices finishing 2011 below the corresponding period in 2010.
With two consecutive harvests delivering higher than expected feed grain volumes (mostly due to rain close to harvest), prices have contracted, which should help to partially offset the higher cattle costs.
There were 713,728 cattle on feed at the end of September 2011, according to the latest quarterly data from the Australian Lot Feeders Association (ALFA) and MLA survey, down 7pc on a year earlier and 24pc below the peak in June 2006.
Given the anticipated tough prospects for the Australian lot feeding sector in 2012, numbers on feed could be expected to remain below 800,000 head.
"For any substantial increase in numbers on feed in 2012, the sector would either need to see a decline in cattle prices, assuming feed grain prices stay lower, or an improvement in returns for high quality grainfed beef, especially to Japan," Mr McRae said.
"Unfortunately for lot feeders, both of these scenarios seem unlikely, with demand and prices for young cattle set to remain high, as the outlook to Japan and Korea is expected to be tough in 2012."
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