El Nino: Australia has 29m cattle, 79m sheep. Slump in prices means their value is halved
Business
Dry weather responsible for the trend amid high interest rates and costs for farmers
DELEGATE (Reuters) – Half the typical amount of rain has fallen this year on Angus Hobson's farm in south-eastern Australia. That means he has less grass and will have to sell off as many as one third of his cattle and sheep to make sure the rest have enough to eat.
He will be selling into a market that has collapsed.
After three years of plentiful rain and rising livestock numbers, dry weather has withered pastures across Australia.
The extreme change in conditions has helped trigger the fastest plunge in cattle and sheep prices in decades, threatening livelihoods in Australia's A$75 billion ($50 billion) red meat and livestock industry.
Slaughter yards are killing more animals and sending more meat to overseas markets, including the drought-hit United States, where beef production is falling.
Prices of cattle raised for beef production fell from between A$3.50 and A$7 a kilo in 2021 to between A$1.40 and A$2.20 by October, while sheep fell from between A$6.50 and $9.75 a kilo to between A$1 and A$4.50, data from industry body Meat & Livestock Australia (MLA) show.
That more than halved the value of Australia's 29 million cattle and 79 million sheep. The roughly 500,000 cattle and 2.5 million sheep and lambs slaughtered each month are worth around A$750 million less than before prices started to fall, Reuters calculations based on MLA data show.
Once they are shorn of their valuable wool, Hobson said he would offload up to 3,000 of his 9,000 sheep. Of his 200 cows, he said some breeding stock could have to go and "anything not integral to breeding will be sold".
Others have already downsized. Stuart Austin at Wilmot Cattle in northern New South Wales said he has halved his herd to 4,000 cattle since April.
SHOOTING SURPLUS LIVESTOCK
November rainfall has eased fears of widespread and immediate drought, lifting prices somewhat. But with forecasters warning that an El Nino weather phenomenon will bring a hotter than usual summer, experts do not expect rapid recovery.
Many farmers are selling animals for a fraction of what they paid for them and some have been unable to find buyers, shooting sheep they can't sell, more than 20 livestock farmers and agents said in interviews.
Rising interest rates and a sharp increase in the cost of necessities such as fuel, machinery and fertiliser have also added to farmers' financial pressures.
While farmers suffer, falling livestock prices have brought some relief to Australian households hurting from high inflation. Top supermarket chain Woolworths recently cut lamb prices by 20 per cent, according to an Oct. 25 note by its CEO.
EXPORT RECOVERY
Export markets, where prices are now higher than in Australia, are providing some relief for the industry. A top meat exporter, Australia ships around $2.5 billion worth of beef and more than $3 billion worth of lamb and mutton a year.
Beef sales to the United States, at more than 6,000 tons a month, have reached their highest since 2020 thanks to a drought that has shrunk US cattle numbers to their lowest since 1962 and pushed American beef prices to record peaks. Shipments to top export market Japan are up, too.
Australia's exports of lamb, mutton and goat meat in September surged to their highest level in decades, in part due to larger shipments to China, customs figures accessed through Trade Data Monitor show.
Falling US beef production means demand for Australian beef should rise, helping support livestock prices, said Angus Gidley-Baird, an analyst at Rabobank in Sydney. The sheep market will likely take longer to recover, he said.
Meat packers such as JBS and Teys Australia have cashed in. Agricultural consultants Episode 3 estimate that Australian beef processors are reaping their best profits in at least two decades thanks to low local cattle prices and high sale prices in export markets.
JBS and Teys did not respond to requests for comment.
'ALL TOO SOON'
Changes in prices and weather often cause livestock numbers to rise and fall, but recent volatility has been extreme.
Australia pivoted from widespread drought in 2019 to rainfall so high it caused flooding between 2020 and 2022, to some of the hottest and driest weather on record this year.
"2019 was two years in the making. This has been six months," said Mat Larkings, a cattle agent in Walcha, northeast New South Wales, who said parts of his region had looked like a desert in recent months and he'd seen cattle too gaunt to be transported.
"This has come all too soon since the last drought. Our clients haven't had time to rebuild," he said, adding that many farmers were struggling with depression as they battle to keep their animals and finances healthy.
Farmers say they will survive until prices recover, but with forecasters predicting more extreme and volatile weather as the global climate warms, some are questioning how they'll continue.
Hobson farms on two properties near Delegate and Bombala, small towns in the southeast corner of the state of New South Wales. In mid-November there was grass on the hills - some green and some a pale, parched yellow - but the government said the region was already drought-affected.
Hobson sold all his cows during the dry of 2019, buying new stock during the last year whose value has now plunged.
He said investment in water infrastructure, pasture subdivision and feeding enclosures was helping him cope with low rainfall, but the speed at which the weather turned dry, livestock prices fell and costs rose made it more difficult to service debt and manage cash flow.
"Our ability to handle drought is getting better," he said. "But there will be livestock businesses that may not survive this."
