By Angus Brown | Source: NLRS, USDA, ABS
Last week we looked at the fall which has been seen in US cattle prices over the last two years. This, along with the release of a report from ANZ, had us asking whether the Australian cattle herd, and prices, are likely to follow a similar trend.
ANZ’s ‘Cattle Call’ report quoted slaughter and export numbers you’ll see regularly on Mecardo, and made an interesting forecast regarding the size of the herd going forward. The average and low growth forecasts have the cattle herd continuing to fall, while the high growth curve has the herd increasing by around 1 million head per year.
While the US and Australia have vastly different cattle systems, we have followed a similar path in both herd size and price over recent years, with Australia lagging two years behind.
Since bottoming out in 2014 the US cattle herd is expected to have risen by 6.6% to the forecast level of 93.5 million head. In 2015 the US herd gained 1.6%, in 2016 it was up 3.2% and the forecast rise for 2017 is 1.6% (figure 1).
The turnaround in the US herd was obviously driven by declining cow slaughter, which means more calves are produced, building the herd. Figure 1 also shows the female slaughter as a percentage of the herd. In order to facilitate the rapid rebuild in the US Female slaughter (Beef and Dairy Cows and Heifers) fell to 14.3% of the herd in 2015, and is expected to be around 14% this year.
Australian Female slaughter has fallen heavily this year, and is expected to come in at 13% of the herd this year. Recent history suggests that the pastoral nature of a large proportion of the Australian herd means that our female slaughter as a proportion of the herd needs to be lower than the US to see a herd rebuild.
The herd rebuild of 2010-2013 took two years of female slaughter at 11% of the herd. While this year’s female slaughter will halt the fall in the herd, we need to see further contraction in the supply of females to see a rebuild like that in the US. We have already seen this to an extent over the last few months, with 2016 female slaughter propped up by stronger supply in the first half of the year.
The ANZ ‘Cattle Call’ report suggested that cattle producers will be faced with the tough decision of taking current very strong prices for short term benefit, or holding on to females in order to build the herd for futures prosperity. Figure 2 suggests many are taking a bit each way, but recent numbers are indicating that there is a swing towards a herd rebuild occurring. How fast the rebuild occurs obviously depends mostly on seasons, as well as price.
What we can take from this analysis, and figure 3 which shows female slaughter as a percentage of total slaughter, and price, as indicated by the EYCI, is that if we follow the US and local historical trends, weak cattle supply is likely to continue to provide support for prices for at least another 12 months. There will be a tipping point however, like we have seen in the US, likely to come in 2018-19.
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