Animal protein sector faces ‘turning point’ in 2023: Rabobank

Animal protein production is expected to remain high in 2023, but Australian producers and processors have been warned they must “pivot to become more sustainable” if they are to prosper. Agribusiness banking specialist Rabobank made the prediction in its new 2023 Global Animal Protein Outlook report, released this week. The report said industry participants worldwide must adapt to sustainability challenges and ongoing biosecurity risks at a structural level to remain competitive over the longer-term. That was despite predictions production levels and the price of meat, poultry and seafood would remain elevated next year. Report lead-author and Rabobank animal protein global strategist Justin Sherrard said 2022 had “been a year like no other for the animal protein industry”. “Companies have grappled with rising input prices, supply chain disruption and geopolitical strife, many of which are unresolved as we head into 2023,” he said. “These factors have increased costs across the market, but while prices rise quickly, they tend to fall more slowly. “We therefore expect prices to remain high next year, even as the market enjoys steady production growth on the back of a growing supply of aquaculture and poultry. “This masks reductions in the supply of beef, due to contraction in the US after years of drought, and the weakening pork market in Europe.” Rabobank has forecast year-on-year growth in major animal protein markets of five million tonnes — or one per cent, down from 2 per cent this year — to a total of 430Mt. The increase in production levels is being driven by demand for poultry, fish and seafood offsetting the weaker performance of beef and pork, with strong demand for salmon expected to continue as weak supply growth supports prices. However, consumers will likely increasingly opt for “convenience products” like hot dogs and fish fingers over expensive meat cuts such as fillet steak, as inflation continues to bite. OUTLOOK FOR AUSTRALIA Livestock prices are expected to ease in Australia next year as numbers increase and producer demand drops, according to report co-author and Rabobank senior animal protein analyst Angus Gidley-Baird. Mr Gidley-Baird said favourable seasonal conditions in Australia continued to support an increase in sheep and cattle numbers. “With La Nina persisting and the Indian Ocean dipole remaining negative, most areas of Australia are expected to have average to above average rainfall into 2023,” he said. “Such favourable conditions will support the upward growth in livestock inventory numbers. “Sheep numbers are expected to recover from drought-impacted years. This higher inventory will support increased lamb production in 2023 — up between 4 and 6 per cent.” Mr Gidley-Baird said cattle numbers had not recovered as quickly as sheep, and with good pasture availability in northern areas, cattle producers would still be looking to grow their herds. “However, despite increased inventory, labour constraints and tight margins likely mean beef production will show no further growth in 2022 before lifting by 5 per cent in 2023,” he said. While favourable seasonal conditions and low livestock numbers were supporting consumer demand and keeping livestock prices elevated, with lamb prices returning to five-year average levels late this year, the report found demand was softening. Mr Gidley-Baird said import prices for Australian beef into key markets were still historically high but had declined since early this year, and order volumes appeared to be dropping. “This is cutting margins for the post-farmgate operators in the supply chain,” he said. “In addition to the challenges of accessing labour, thin margins provide no incentive to increase volumes or pay higher prices for cattle. “At some point, these two markets — the production market and the consumption market — will collide, most likely driven by a change in season or oversupply of livestock, and livestock prices will correct downwards.” He predicted livestock prices would remain historically high in 2023, albeit with some softening. “Good availability of lambs and softer economic conditions are expected to result in lamb prices remaining relatively stable through 2023, although softer economic conditions pose a downside risk,” Mr Gidley-Baird said. “Cattle prices are expected to ease in light of increased cattle numbers and softer producer demand.” Rabobank predicted producers and processors worldwide would intensify their emissions commitments next year, requiring greater investment in areas such as smart data. “The most successful businesses are also moving on to a more proactive footing to manage disease risks, such as African swine fever and avian influenza,” the report said. “This includes sensors that can recognise unusual animal movements and predictive technology to limit herd loss.”