Australia's dry spell and a strengthening El Nino are proving a boon for U.S. 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 percent surge in shipments to the U.S., government data show, with most of that destined to become burgers.
The U.S. last year overtook Japan as Australia's top export market, while 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 Inc. turn to Australia for beef.
"Feedlots have been pretty much full for the last 12 months," said Paul Deane, an analyst at Australia & New Zealand Banking Group Ltd. in Melbourne. "It's been profitable to have cattle on feed here in Australia and process them and sell into the U.S. market."
About 70 percent of Australian beef shipped to the U.S. is so-called manufacturing beef, used to make hamburgers. Importers include McDonald's Corp., the world's largest restaurant chain by sales, and Carrols Restaurant Group Inc., the largest Burger King franchisee. Chipotle said last year it was sourcing some grass-fed beef from Australia to meet demand, citing the U.S. herd dropping to a 60-year low.
Carl's Jr., a hamburger chain owned by CKE Restaurants Inc., earlier this year started selling an all-natural burger in the U.S. made with Australian beef. The meat is from free-range cattle that are grass fed and not given antibiotics, Chief Executive Officer Andy Puzder said in a July 9 email.
Australia is the top supplier of beef and veal to the U.S., accounting for 37 percent of imports last year, U.S. Department of Agriculture data show. Purchases of Australian beef surged 65 percent 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 industry research and marketing firm Meat & Livestock Australia and government data. More than 80 percent of top beef producer Queensland is in drought, and there may be more herd liquidation if the dry conditions persist.
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 Australia's Bureau of Meteorology. Of the 26 El Nino events since 1900, 17 have resulted in widespread drought in Australia, it said.
While the weather pattern typically 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 $3.71 for every 2.2 pounds 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 percent drop in beef and veal output, exports are set to reach an all-time high in 2015.
Shipments in the first half of this year are 11 percent 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, Andre Nogueira de Souza, president of meat giant JBS USA LLC, said in May.
At the current pace, Australia may reach 85 percent of its U.S. 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 U.S. All of these things auger very positively," Jason Strong, CEO of Australian Agricultural Co., the country's biggest beef producer, said in May.
SundayMonday Business on 07/26/2015