How Australia's drought is bringing the beef to McDonald's

Phoebe Sedgman -Jul 22, 2015

Beef shipments to the US have surged by more than two thirds, with most of it destined to end up as burgers.

Australia's dry spell and a strengthening El Nino are proving a boon for US hamburger lovers.

Queensland's most widespread drought ever is sending a near record number of cattle to feedlots as ranchers cull cows at the fastest pace in more than three decades. That's boosting beef exports to an all-time high, including a more than 70 per cent surge in shipments to the US, government data show. Most of that is destined to become burgers.

The US last year overtook Japan as Australia's most important beef export market, while a prolonged drought through Texas saw a four-year slide in American beef output. Supply there will stay constrained even as the herd rebounds from a six-decade low, because it takes about 20 months before cattle are big enough for slaughter. That's seen companies including Chipotle Mexican Grill turn to our shores for beef.

"Feedlots have been pretty much full for the last 12 months," said Paul Deane, an analyst at ANZ Banking Group in Melbourne. "It's been profitable to have cattle on feed here in Australia and process them and sell into the US market."

About 70 per cent of Australian beef shipped to the US is so-called manufacturing beef, used to make hamburgers. Importers include McDonald's, the world's largest restaurant chain, and Carrols Restaurant Group, the largest Burger King franchisee. Chipotle said last year it was sourcing some grass-fed beef from Australia to meet demand, citing the US herd dropping to a 60-year low.

Top supplier

Hamburger chain Carl's Jr. earlier this year started selling an all-natural burger in the US made with Australian beef. The meat is from free-range cattle that are grass fed and not given antibiotics, according to its chief executive, Andy Puzder.

Australia is the top supplier of beef and veal to the US, accounting for 37 per cent of imports last year, US Department of Agriculture data show. Purchases of Australian beef surged 65 per cent in the first five

months of 2015 from a year earlier, the data show.

Australia's cattle cull may top 8 million for a third straight year for the first time since 1979, according to Meat & Livestock Australia and government data. More than 80 per cent of top beef producer Queensland is in drought, and there may be more herd liquidation if the dry conditions persist.

El Nino

The first El Nino since 2010 has been turbocharged by recent tropical cyclones in the Pacific Ocean and is set to last at least until the end of the year, according to the Bureau of Meteorology. Of the 26 El Nino events since 1900, 17 have resulted in widespread drought in Australia, it said.

While the weather typically pattern brings below-average winter and spring rain to eastern Australia, storms in June saw farmers hold back cattle from sales. That pushed the Eastern Young Cattle Indicator, which measures prices at auctions, above $5 kilogram in June for the first time ever.

Even though the rain wasn't enough to ease drought conditions, it boosted buyer confidence, according to Meat & Livestock Australia. While the industry group predicts a decline in slaughter this year and a 1.8 per cent drop in beef and veal output, exports are set to reach an all-time high.

Shipments in the first half of this year are 11 per cent higher than in 2014 and slaughter is 3.8 percent ahead of last year, when the full-year total was the highest in at least 36 years, government data show. Even if production slows in the second half, output will still be higher than last year, said Andre Nogueira de Souza, president of JBS USA.

At the current pace, Australia may reach 85 per cent of its US beef export quota by as early as mid-August, Agriculture Minister Barnaby Joyce said in June.

"The global demand for beef, this growing mega-middle class, the increase in demand for premium products, the challenges around supply, particularly in countries like the US. All of these things augur very positively," Jason Strong, the head of the nation's biggest beef producer Australian Agricultural Co. said in May.


Category: Forex

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