The gross value of production for the livestock sector is forecast to increase by 8% to $33.4 billion in 2021–22 due to an increase in prices of most meat and livestock products. Global demand for livestock products is forecast to increase as countries continue to reopen. This reopening has prompted a return to positive global economic growth – increasing disposable income, boosting consumer confidence, and giving consumers more opportunities to spend savings accumulated during lockdown.

Domestically, favourable seasonal conditions throughout 2021 are forecast to continue into early 2022. This is expected to support the production of wool and dairy products, and the rebuilding of cattle herds and sheep flocks. Beef, lamb and mutton production are forecast to increase, but lamb and mutton increasing relatively more than beef. Record high cattle prices are expected to continue providing incentives for farmers to retain cattle for longer and maximise weight gains before sale.

Red meat and livestock prices forecast to increase

The gross value of production of cattle and sheep slaughtered is forecast to increase due to high global meat prices, strong domestic prices (driven by restocking demand) and modest increases in production. The value of cattle slaughtered is forecast to rise by 16% to almost $15 billion, and the value of sheep and lambs slaughtered is also expected to rise by 16% to $4.9 billion. Average saleyard prices are forecast to increase by more than 11% for cattle and 8% for lambs in 2021–22 (Figure 5.1).

Global prices for beef and sheep meat are forecast to increase as global demand recovers alongside tight meat supplies. US meat prices have risen significantly over the last 12 months, resulting in higher lamb exports to the United States and higher Australian lamb prices. Australia’s low beef production will limit its ability to capitalise on this export opportunity. Beef export volumes are forecast to increase by 5% and sheep meat export volumes by 9% in 2021–22, but these will remain well below 2019–20 levels.

Chinese beef import prices are also likely to remain high. In September 2021 Brazil suspended beef exports to China after identifying 2 atypical cases of bovine spongiform encephalopathy (BSE) in its domestic meat plants. China responded by imposing an embargo on Brazilian beef imports, which is still in place at 1 December 2021. Some of these exports have been redirected to the booming United States market. Argentina has also implemented its own beef export restrictions for domestic reasons. The reduction in Argentinian beef exports has had a greater impact on beef exports to China than on those to the United States and Europe. Additionally, the US Department of Agriculture has forecast China’s pork production to fall by almost 5% from 2021 to 2022 due to the high price of inputs (notably feed grains). These factors, combined with expected increases in meat demand, is likely to put upward pressure on Chinese meat prices. This will support Australian meat exports to China, especially mutton exports, which are particularly sensitive to Chinese demand.

Australia’s lamb and mutton production is forecast to increase by 8% to 680,000 tonnes in 2021–22, and beef production is expected to increase by almost 4% to 2 million tonnes. Sheep slaughter is expected to increase by 13% due to strong prices for marginal ewes that were kept on for an extra season. Lamb production is also forecast to increase as previous flock rebuilding brings more lambs to market. Beef herds are also rebuilding but forecast increases in the slaughter of cattle will not be as high as those for sheep. Cattle are expected to be held longer by producers to take advantage of pasture availability. Cattle slaughter numbers are expected to increase in the first half of 2022 as heavier cattle are brought to market. The easing and reopening of border restrictions may alleviate labour shortages for some meat processors, providing scope for production to increase.

Export volumes are forecast to increase at a slightly higher rate than production, as high global prices divert additional beef to export markets. This is forecast to result in lower volumes of domestic retail beef, continuing a trend of falling beef and sheep meat consumption per person relative to pork and chicken in Australia (Figure 5.2).

Mixed forecasts for live exports

The economies of all major live export destinations are forecast to grow in 2022, resulting in greater demand for live exports. Despite this growth, Australian livestock exporters are expected to be constrained from capitalising on this opportunity. Live sheep exports have fallen in recent years (Figure 5.3), but they are expected to rise by 10% to 662,000 head in 2021–22 due to stronger demand in the Middle East. Live cattle exports are expected to remain steady. Growth will be held back by the high prices of Australian cattle, stock availability and potential shipping issues. Indonesian demand for live cattle may increase if high domestic beef prices persist.

In contrast, live dairy cattle exports have been relatively resilient during the recent economic downturn (Figure 5.3). Demand for Australia’s dairy cattle is driven by Chinese producers looking to serve a growing domestic dairy market, by increasing the size and improving the genetics of their dairy herd. This means dairy cattle exporters are less exposed to the price and supply issues currently facing feeder/slaughter cattle exporters. Dairy cattle exports are forecast to be slightly lower in 2021–22 but remain historically high. New Zealand’s ban on live cattle exports by sea from 2023 is expected to keep demand for Australian cattle high in the medium term.

Securing shipping for the remainder of 2021–22 remains a risk for the live export industry. The slowdown in the live cattle trade has seen several vessels servicing the Australia to South-East Asia trade redirected to other routes. Live exporter profit margins may also be affected by costs (such as flights and quarantine) associated with bringing support staff back to Australia.

Wool exports to increase as global demand continues to recover

The gross value of wool production is forecast to increase by 25% to just over $3 billion. Recovering demand for Australian wool is expected to continue due to increased consumer spending in advanced economies. The Eastern Market Indicator is subsequently forecast to increase by 16% to 1,390 cents per kg clean for 2021–22.

Wool exports are forecast to increase by 28% to $3.4 billion due to higher export prices and higher production volumes. The increased demand for woollen products will come from advanced economies such as the United States, European Union, Japan and the Republic of Korea. Export volumes from July to September were up by 62% compared with the same period last year, despite higher freight costs.

The energy crisis affecting industrialised provinces in China was expected to dampen demand for Australian wool because processing capacity was restricted. However, the crisis has eased, and Chinese processors have returned to Australian wool auctions, following a slight dip in wool auction clearance rates and prices. On the other hand, Chinese consumers are being more cautious in their spending. Following the recent real estate and energy crises, along with slower economic growth (Figure 5.4), apparel sales in China fell by around 5% year-on-year in August and September.

Shorn wool production is forecast to increase by 8% to 315,000 tonnes in 2021–22. Favourable climatic conditions in eastern Australia are expected to continue, with the formation of another La Niña event in November 2021 supporting pasture growth in the months ahead. This is likely to support flock rebuilding and slightly increase wool cut to 4.58 kg per head. Recovering wool prices are bringing producers and their stocks to market. The number of wool bales offered between July and October jumped by 30.5% compared with 2020–21 levels, resulting in increased exports.

Milk prices and production forecast to increase

The gross value of milk production is forecast to rise by 7% to $5 billion in 2021–22 due to higher prices and increased production volumes. The average farmgate milk price is forecast to increase by 6.3% to 56 cents per litre or $7.34 per kilogram of milk solids in 2021–22. Competition for milk supply has led to price step-ups by Saputo and Fonterra in October. Rising export prices are likely to result in further step-ups. Low global supply has supported global dairy prices while import demand has remained firm in South-East Asia and China. Domestic demand is forecast to remain strong through 2021–22 as high, vaccination rates and continued economic recovery see consumption shift from groceries back to food service channels.

Australian milk production is forecast to increase slightly to 8.9 billion litres in 2021–22, a small downward revision from the September quarter forecast. This is due to high cull cow volumes and lower yields following wet and cold conditions over winter and early spring. July to September production was 3.3% below the same period in 2020–21. Production is expected to recover in late 2021 and early 2022. This assumes that forecast high soil moisture and higher pasture availability for late spring and early summer will lead to a rebound in per cow milk production yields. Australian dairy farmers have enjoyed consecutive years of strong prices and favourable seasonal conditions. Low irrigation and feed prices and record nominal farmgate milk prices in 2021–22 should help promote industry profitability, despite increased fuel and fertiliser costs.

Milk production in the European Union and the United States is forecast to increase slightly in 2020–21 but will still fall short of average year-on-year production growth. Dairy production in both economies is more intensive than in Australia. This leaves producers more exposed to forecast high feed costs and is expected to limit milk production volumes in both economies. High beef prices in the United States have also led to higher cull numbers. The trend of falling cow numbers is consistent in the European Union, Australia and New Zealand. The New Zealand dairy industry has been particularly affected by reforestation regulations, which reduce the area available for dairy farms.

Australian dairy cow numbers have been revised lower in 2021–22 due to continued farm exits and retirements. Labour shortages, high land values and beef prices may make reducing herds or exiting the dairy industry appealing for some producers, despite the favourable operating conditions. Cull cow prices in Victoria are at a record high, leading to the sale of any marginal or unproductive cattle. Live export of dairy cattle to China is also expected to place downward pressure on Australian dairy herd numbers.