Australian cattle eating into wheat exports

Starved by drought | Long-term shortages could arise as producers cull cattle because of drought

SINGAPORE/SYDNEY (Reuters) — Soaring demand for Australian wheat to feed cattle is diverting grain away from export markets.

Embattled ranchers have been forced to send tens of thousands more animals than usual to feedlots to fatten them up before slaughter.

A scorching drought that is withering pastures in Queensland state, which is home to half of Australia’s 28 million strong herd, is also forcing producers to transport cows huge distances because feedlots are full to bursting with underweight cows.

Queensland has recorded less than half of the normal rainfall in the last three months, stunting grass in pastures in an area double the size of France and curbing grain production.

Australia is the world’s second-biggest wheat exporter, and extra feed consumption means Asian buyers, such as China, will have to buy more cargoes from other suppliers in North America or Europe.

Wheat prices have already shot up in Australia’s drought-hit areas, and the premium over global prices is three times the normal level.

The tightening supply could also increase pressure on benchmark U.S. prices, which have risen on concerns of crop damage in the U.S. because of icy conditions.

“If it doesn’t rain in the next few weeks, there will be a lot more cattle going to feedlots, assuming the feedlots can fit them in,” said Ross Fraser, co-owner of Frasers Livestock Transport, one of the biggest cattle transporters in Queensland.

Feedlots use wheat and other grain such as sorghum.

However, Australian sorghum production is forecast to fall more than one-third to 1.278 million tonnes this crop year, meaning extra wheat will be needed to fatten cattle.

More than half of Australia’s feed yards are in Queensland, but with little room remaining, farmers are sending cattle as far away as 1,500 kilometres to Victoria state.

Animals in Australia’s remote cattle country have to be driven across land in herds or transported using road trains, which can be more than 50 metres long and carry up to 130 head of cattle in multiple trailers.

Typically, cows go to feedlots for 90 to 100 days to certify them as grain-fed before culling, but animals are now being sent earlier and kept there longer because of the drought.

“The priority of late is to send cows to feed yards because there simply is no grass left on many properties to feed them,” said Simon Quilty, meat and cattle analyst at FCStone Australia.

About 2.5 million tonnes of wheat are used in an average year for feed in Australia’s 450 feedlots, which have a capacity to hold 1.1 million cows. Most of the herd relies on pasture.

There were 787,487 cows in feedlots at the end of September, according to the latest data from the Australian Lot Feeders Association, but feedlots in Queensland were nearly 90 percent full even before drought worsened at the end of last year.

Traders said grain is being diverted from exports to feed cattle.

“We are already seeing exports go down from Queensland and New South Wales,” said a Sydney-based grains trader. “This is directly resulting from lower production and higher consumption by the livestock industry due to the drought.”

The trader estimated that exports from these two states would fall to 1.5 million tonnes this year from the normal 2.5 million tonnes.

Australia’s overall wheat production is expected to top 27 million tonnes in 2013-14, the third highest on record, but this is mainly because of a big crop in Western Australia, while Queensland and northern New South Wales suffer from drought.

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