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Wednesday, June 29, 2016

ABARES forecasting even tighter supply

By Angus Brown  |  Source: ABARES, MLA, ABS.

Key points

  • ABARES are forecasting a 23 year low for the Australian cattle herd in 2016-17, and a 4 year low for cattle slaughter.
  • ABARES slaughter forecasts for 2016-17 look high given the herd and season thus far.
  • Cattle prices should remain strong in 2016-17, but will be remain reliant on strong export prices.

2016-06-29 Abares Forcasting Tighter Supply Fig 1

2016-06-29 Abares Forcasting Tighter Supply Fig 2

2016-06-29 Abares Forcasting Tighter Supply Fig 3



Last week the Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES) released their quarterly ‘Agricultural Commodities’ report. While there is little to be gleaned from the price forecasts, it’s worth taking a look ABARES cattle herd and production forecasts as a pointer to how supply might drive prices over the coming year.

ABARES cattle herd forecast for the coming year is similar to that of MLA’s latest projections released in April.  ABARES expect the cattle herd to finish 2015-16 at 26.1 million head (figure 1), and they are forecasting further falls in 2016-17, albeit minor.  ABARES are forecasting a herd of 25.9 million head in 2016-17, which will be a new 23 year low.

The decline in the herd is expected to finish in 2017, with weaker slaughter a precursor to a herd rebuild.  ABARES expect cattle and calf slaughter for the coming year to fall 7.3% to 8.2 million head.  This will only be a five year low, but will be the third lowest level in 30 years. 

With the way the season has started, and with such low herd numbers, there is a good chance cattle slaughter in the coming year could hit a 26 year low, as it would only have to slip under 7.9 million head.

Despite the 7.3% fall in cattle slaughter, ABARES expect beef production to fall just 4%, as rising slaughter weights compensate somewhat for the lower cattle supply.  Figure 2 shows that the adult cattle slaughter weights are expected to reach a new record high of 289 kg/head, which outstrips the previous 2011 and 2012 levels by 2kgs.

The ABARES cattle slaughter forecast doesn’t really fit with current price spreads.  Adult Cattle slaughter of 8.2 million head for 2015-16 would, according to figure 3 see the EYCI priced at a 90¢ discount to the 90CL frozen cow.  For 2016 so far the EYCI has averaged around parity with the 90CL, which fits closer with the 2016-17 slaughter forecast.

What does this mean?

ABARES cattle slaughter forecast looks at the high end of the scale given the size of the herd, but even at the forecast level we can still expect cattle prices to remain strong for the coming year.  It seems unlikely that cattle prices can rise much further under the current export market fundamentals. 

However, a continued good season could see the spring price fall be more mild than normal, as a strong herd rebuild will see supplies remain relatively tight, given the current low head count.

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