Australian Wagyu Markets
- National Wagyu Breeding Scope
- Wagyu Feeding Industry Scope
- Australian Production Scale Indicators
- Seed Stock Markets
- Structural Evolution
- Feedlot Sector Volatility
- Currency Impact
- Futures Speculations
This section reviews the scope and recent history of the Australian Wagyu history to end 2015. Price indicatives by livestock type (EG: feeders, breeders) is available at What’s A Wagyu Worth.
Japanese Black breeding and feeding in Australia is dominated by crossbreeding, with a small fullblood segment expanding from a tiny base. Annual growth and/or contraction are difficult to define but the industry is growing rapidly and providing excellent returns to participants. Generally, the only source of reliable population data for the Australian Wagyu herd is the Australian Wagyu Association, as no breed population details are collated by beef’s peak body, Meat & Livestock Australia (MLA). However, limited ‘high credibility’ media coverage, newsletters and annual reports enable the following summary.
The last AWA population survey data appeared in the The Australian Wagyu Update in April 2011, unfortunately removed from the web by AWA. Given the Australian Bureau of Statistics (ABS) cow/calf herd size estimate of about 208 million at 30 June 2011, and an adjusted 30 June 2011 estimate of total Wagyu-infused cattle at about 200,000 head, a plausible guestimate is that Wagyu infusion is present in 1~2% of the total Australian cattle population.
Official sources estimated 47% of about 104,000 joinings within this group in 2012 were for the production of F1, but driven by shortages in 2013-14 and substantial sales of FB sires for F1 joinings, an additional 30,000 joinings was readily achievable in 2015. The impact of this will be assessable in Wagyu beef markets from 2017
Conversely, most AWA breeders are believed to have a major focus on fullbloods, but with fullblood joinings making up just 15% of joinings. This is not surprising given that there was no open market for fullblood feeders in Australia until 2005, and most Australian fullblood herds have operated to an extent as genetics reservoirs for the crossbreeding industry. Increased demand for FB breeding bulls decreases FB feeder supply, so tensions arise related to small scale.
The remaining 35% of joinings are estimated to target purebred, F2-3-4 percentages. Other breeders developed ‘purebred’ herd development strategies, primarily targeting improved grassfed performance.
As might be expected in a premium beef “niche”, the Wagyu segment encountered severe recession from 2007-2011 as a result of global economic conditions. As feedlot procurement ceased, many F1 producers exited this segment and cleared stock with significant losses – especially of heifers. A resurgence in demand from 2012 saw sharp increases in producer returns, with accompanying shortages of F1-pedigree fullblood sires (typically >65% Tajima content), and shortages of feeder cattle.
In September 2013, Australian Wagyu production was reviewed by Jon Condon, veteran Queensland agricultural journalist and publisher of the successful Beef Central daily newsletter. Condon confirmed Wagyu resurgence, estimating live export of F1s to Japan at 20,000 head. AACo was identified as feeding 31,000 F1s, Stanbroke feeding about 10,000 and Rangers Valley about 11,000. AACo feedlots and Wagyu manager Greg Gibbons indicated the company was feeding about 34,000 Wagyu overall, which implies some 3000 were fullbloods.
The percentage of Wagyu-infused in the Australian feedlot population has been substantially higher than in the national beef cattle herd for many years, reflecting a general Wagyu specification for grain finishing and the length of feeding time required. However, since 2000, just two surveys of Australian Wagyu on feed have become generally available, the first published by the Australian Lotfeeders Association (ALFA) with MLA in 2006; the second in The Australian Wagyu Update Edition 42, March 2009, which AWA has unfortunately removed from web access.
- In November 2006, Wagyu-infused on feed at 61,300 head was estimated at 6.52% of the June 30 2006 feedlot population of over 940,000 head; with 4220 fullbloods making up just 6.88% of the infused population. Wagyu infused turnoff was estimated at 85,000 head per year.
- In March 2009, following major impacts from drought, feed/currency price spikes, and recession, Wagyu-infused on feed was estimated at 50,018 head, including 4281 fullbloods. The ALFA cattle on feed estimate for the preceding December 2008 quarter was about 719,000 head, so Wagyu-infused had ‘held their own’ despite extraordinarily difficult market conditions.
- In the December quarter 2011, ALFA/MLA reported about 790,000 cattle on feed. If Wagyu-infused held at about 7%, the total Wagyu feedlot population might have approximated 55,300 head, with possibly 6000 fullbloods, reflecting growth in fullblood joinings.
- On 4 September 2013, the Beef Central industry newsletter reviewed the Australian Wagyu feeding industry (see article linked here). A ‘census’ of three major feeding operations indicated a total of over 50,000 F1s on feed in these three, with perhaps 3000 fullbloods being fed by AACo. Given that the ‘census’ did not cover many significant Wagyu feedlot operators (especially fullblood feeders), it is clear that the F1 feeding industry has not only recovered but has expanded beyond its pre-GFC peak. This is despite unfavourable Australian currency fluctuation and continuing recession in many international markets.
- F1-Purebred for domestic feeding (but mainly export marketing). As evident above, various grades of crossbred Wagyu typically constitute more than 85% of Wagyu infused on feed. As noted above, there were well over 50,000 F1s on feed in just three of the major feedlots in 2013 and overall numbers could be projected to exceed the previous peak around 2005-2006.
- Live Export. MLA/LiveCorp reported over 24,000 head of Wagyu-infused feeders involved in live export to Japan in 2005-2006, mostly F1-Angus crossbred. There was a slump in the GFC period. Anecdotal reports then suggest less than 15,000 head exported in 2011, but expanding in 2015.
- Fullblood production. AWA sources predicted about 15,600 fullblood joinings in 2012, suggesting an offtake close to 8000 head, given that FB bull sales were slow in this period. Comprehensive fullblood carcass production analysis is complicated by the fact that many are fed in vertically integrated private or custom-feed operations (notably Security Foods, Blackmore, Macquarie Downs, Mayura, and Maydan). Others are mixed in F1 feeding operations, and all are hampered by Australian industry inability to effectively differentiate FB and XB carcass quality performance.
- Pricing for individual F1 feeders. Liveweight pricing (at the feedlot weighbridge) for F1 feeders prior to about 2006 peaked over $3.00 ex GST, which then represented a very substantial premium over conventional Bos taurus feeder prices. Again there was a substantial slump in the GFC period. However, Jon Condon’s ‘Beef Central’ article of 4 September 2013 indicated typical liveweight F1 feeder returns to the producer of $3.00-$3.10kg, compared with contemporary southern Queensland pricing for conventional feeders at about $2.00kg – a massive $350-$420 premium for an individual feeder animal, given little weight discrepancy between the two livestock classes. In 2015, shortages drove an on-line auctions spike spot prices soaring close to $7kg/lwt for a brief period. See What’s a Wagyu Worth.
- Pricing for fullblood feeders. Competitive liveweight pricing detail for fullblood feeders tends to be tightly held by individual buyers and producers with no publically available grids – vendors must speak direct with potential buyers. Historical 2005 quotes exceeded $4.00 kg/lwt at the feedlot, but as in all categories this declined during the 2007-2011 GFC period, with lows around $3.30. In 2015, specification compliant FB feeders in Victoria and NSW were attracting bids of up to $5.80kg/lwt, with shrinkage and transport inducements.
- Relative profitability in Wagyu production is difficult to quantify but the sector is much more profitable than commodity beef. In 2013, the AACo annual report indicated highly satisfying returns from very extensive Wagyu operations – a significant achievement considering ongoing commodity cattle industry economic woes in USA feeder/packer operations and in parts of Australia. AACo annual reports since have continued to throw positive light on the high relative profitability of Wagyu operations. See AACo.
- Seedstock Sales. Until the inaugural AWA Conference sale (2014) there had been no notable multi-vendor FB Black Wagyu seedstock sales in Australia since national herd commencement. The outstanding single vendor sale was held by Westholme Wagyu in 2005, largely consisting of an F1-target sire catalogue and most likely stimulating the rush of new bull registrations evident from 2007. One or two successful single vendor sales from 2006 were much smaller; while equally few larger single-vendor offerings often met lack of interest, (as assessed by AuctionsPlus post-sale sales result postings). All of these catalogued largely F1 or cross-bred target animals.
- Fullblood sire sales up to October 2014 were generally limited to vendor website listings, with asking prices in the $3K-$5K hd range, with the vast majority of offerings targeting F1 breeding. As a result, many small and medium scale fullblood producers opted for the lower risk strategy of selling FB males as castrates at relatively high feeder prices (compared with commodity cattle pricing). A resurgence in F1 production has created a shortage of F1-target sires, with very little availability by early 2015. Late 2015 asking prices for sires range from $AUD5500-$7000, bidding competition declining into Q4.
- Significant public offerings of good quality, registered fullblood females are infrequent, with historic pricing being a slight increment over feedlot prices for fullblood feeders. Typically this priced average FB breeders from $1800-$2500 hd, with some vendors asking up to $4K/hd for heifers. Only anecdotal information is available in relation to historic clearance rates. The October 2014 AWA multi vendor conference sale achieved pricing to $3200/hd for FB heifers. In late 2015, regd FB heifer pricing ranged from $2400-$5000, mainly online at AuctionsPlus, with highly variable quotes for small weaner FB heifers from $850/hd. A definite southerly trend in market sentiment.
- A Giant Emerges: Until 2005, the Australian Wagyu industry consisted of numerous enterprises – mostly ‘small’ by ABS definition. This changed with the 2006 purchase of the relatively substantial Westholme fullblood herd by pastoral giant, AACo. Operator of a pastoral empire occupying up to 1% of Australia’s land area, AACo owns Australia’s largest cattle herd, with over 600,000 head under management, and has achieved industry renown with innovative composite breeding programs. According to ALFA, in 2006 AACo was then already the largest feeder of Wagyu. The Westholme acquisition gave the still-‘new’ breed unchallengeable credibility, with AACo dominant.
- Following the acquisition, AACo was able to breed large numbers of FB Wagyu sires for crossbreeding over its broader herd and feeding in company feedlots. To a significant extent, and aided by the GFC downturn during which competing feedlot operators left the Wagyu market, this strategy displaced small FB seedstock herds with genetics targeting cross-bred sire production. AACo used the period to ramp both fullblood and crossbred Wagyu production, which was continuing to grow at over 8% PA in 2012. The company then claimed over 60,000 head in its Wagyu supply chain, and turnover of 30,000 head.
- By 2013, AACo was able to claim 50% of Australian Wagyu production, and ownership of the largest Wagyu herd in the world – in fact, the world’s largest individual Wagyu producer. Befitting an ASX-listed entity, the AACo 2012 annual report and other recent results presentations provide startling insight into results possible from high value, premium production when compared with conventional northern pastoral operations. Despite accounting for just 11% of the AACo cattle herd, Wagyu sales (mainly crossbred) provided 62% of revenues for the AACo Wholesale Beef Group, itself responsible for about 44% of AACo revenues. Although mainly exported (principal destination North Asia), AACo Wagyu product maintained ‘good margins’ even with the $AUD at record highs. High end, highly priced AACo Wagyu product was identified at Harrods and won prestigious gourmet awards. Conventional AACo beef product did not fare as well.
- In summary, in something under a decade, and by taking firm grasp of a new (Wagyu) opportunity, AACo built a globally competitive, resilient ‘niche’ cattle business that in 2012 was achieving over 27% of company revenue – but is derived from just 11% of the total AACo herd. In 2012-15, Wagyu boxed beef returns appear to have been the principal catalyst in a major company turn-around.
- AACo opened the first Australian feeder market for fullbloods in 2005 and continued purchasing through the darkest days of the feed price spike and GFC. AACo continued as an active, competitive open market FB bidder in 2015. Both heifers and steers are procured. Several competing feedlot operators, mainly Queensland-based, have subsequently become fullblood feeder buyers, including Macquarie Downs and JBS, with the southern Dairy Beef Alliance (Security Foods) entering the fullblood feeder market in 2012. High F1 prices in 2015 have resulted in some intermingling of F1 with FBs, purchased on the same grids. Other fullblood producers are largely vertically integrated (Blackmore, Mayura) and there is an active custom-fed segment (Maydan), where producers retain ownership of animals on feed and sell carcasses on a wholesale spot market.
- Across the broader Wagyu crossbred industry, in a model reminiscent of the Australian (poultry) broiler sector, larger operators have adopted a ‘top-down’ genetic management strategy, with specified/supplied sires intended to ensure feeding performance QA in forward-secured progeny. Larger operators such as AACo supply significant quantities of own-bred bulls into its XB supply base. Early F1 buyers initiated the top-down buyer/specifier trend for breeders with bloodline specifications of 65-75% Tajima content for sires – this is a ‘default strategy’ that hopes to compensate for the ‘unknown’ progeny performance status of young herd bulls.
- The ‘top-down’ genetics strategy achieved a new level of enablement in 2012, this time also covering the fullblood sector, when the AWA board removed restrictions on the use of AI (through cancellation of the AI sire qualification process for registered cattle). While potentially liberating the movement of genetics in an industry challenged by limited diversity, this also enables unimpeded ‘feeding’ of preferred genetics (especially semen) through vertical supply chains.
- Because most Wagyu-infused beef is produced for export in relatively long feedlot programs, the segment is historically vulnerable to both feed price and currency fluctuation. 2005 saw record percentages (34.1%) of Australian cattle finished on grain, but 2006 was a turning point for industry fortunes. In near-parallel with extreme US feed price spikes related to ethanol from 2007, Australian feed grain prices spiked to record levels from 2006-07 as a result of prolonged drought. December quarter 2006 feed barley was up 92% on the December 2005 quarter, sorghum up 88% on a similar comparison. ALFA/MLA reported that by end 2007, Australian feedlot utilization as a percentage of capacity had slumped to 51%, from a record 83% in December 2006.
- By December 2011, with signs of post-GFC recovery, the industry reported feed prices had declined up to 29% year-on-year by 2010, and feedlot utilization stood at 62% for the December 2010 quarter. MLA reported that the 34.5% of Australian cattle finished on grain for 2011 was the highest on record.
- As the GFC receded, high demand returned, and drought again took hold in 2014-2015, ALFA reported feedlot utilisation back at near record 82% levels for the June quarter 2015.
- Feedlot Sector indicators are released quarterly by MLA and ALFA.
- As most Australian Wagyu production is exported, relative $AUD values are critical to industry profitability. As the Yahoo Basic chart below shows, this meant tough times for many Australian agricultural exporters up to late 2013, but since then the decline in Australian mining has meant a currency decline and revival for agricultural competitiveness. Few more so than Wagyu producers, who export more than 70% of total production. It is no accident that the on-line auctions spike in local pricing in mid 2015 coincided with the $USD1.00 – $AUD70 cent barrier.
- As with any premium food commodity, the fortunes of Wagyu beef are linked to global affluence. And while beef itself is a declining red meat protein in some traditional markets due to price competition, demand is growing in many emerging economies. Now a new driver may emerge in the global beef industry’s (and the Wagyu seedstock industry’s) competitive quest. This new driver may be beef graded for better ‘eatability’ – and this has the potential to vastly extend the appeal of Wagyu genetics into mainstream beef production.
- Australia is a long-established leader in the eatability quest : developer of the Meat Standards Australia (MSA) grading system, based on consumer sensory responses. Where this yields dollar premiums, so Wagyu genetics may be thrust into a new level of consideration.
- If Wagyu infusion is scientifically acknowledged to provide a better consumer experience and this is incorporated into commodity beef grading and pricing; and if Wagyu seedstock producers can offer crossbreeding genetics that maintain growth and carcass weights for grass-fed or short-fed production while enhancing MSA graded eating quality – then the sky is the limit for Wagyu. At the time of writing however, the state of the science in Australia was such that senior animal science consultants to the industry claim they are unable to differentiate between Fullbood Japanese Black and F1 Wagyu/Angus beef.