Price Movements: Closing the Gap with Brazil
In the early 2000s, Australian cattle prices were closely aligned with those in Brazil and other South American beef-exporting nations. However, this trend shifted in 2015 when Australian cattle prices surged, creating a significant premium.
Over the past year, the Australian heavy steer indicator has declined by just over 50%, while Brazilian heavy steer prices have remained relatively stable.
This has resulted in a narrowing of the price gap between the two countries, a change primarily attributed to the fall in underlying Australian prices and fluctuations in exchange rates.
Exchange Rates: A Tale of Two Economies
Australia’s robust economic performance over the past decade has elevated its exchange rate well above historical averages. This has made imports cheaper but has also increased the global price of Australian exports.
Conversely, Brazil’s economy has underperformed, leading to a 60% depreciation in its currency, the real, between 2012 and 2022. This made Brazilian cattle cheaper on the global market, boosting its exports but reducing domestic consumption by 20% over the decade.
Recent Trends: A Shift in Currency Dynamics
Since the beginning of 2023, the Australian dollar has depreciated by 5% against the US dollar, while the Brazilian real has appreciated by the same percentage. This effectively gives Australian cattle a 10% price advantage over their Brazilian counterparts on the global market, compared to the start of the year.
Future Outlook: Uncertainties and Opportunities
While the exchange rate is notoriously difficult to forecast, the current weaker Australian dollar is beneficial for exporters. It enhances the competitiveness of Australian red meat, particularly in markets where Brazilian exports would have otherwise been more attractive. This is expected to be advantageous as export volumes continue to rise.
However, it remains uncertain how long this favourable exchange rate will last, although it positions Australia well in the global market for the foreseeable future.
In summary, Australia’s beef industry is experiencing improved international competitiveness, largely due to recent declines in cattle prices and favourable exchange rate movements.
These factors are expected to bolster demand for Australian red meat in global markets, although uncertainties around future exchange rate fluctuations persist.
