By Tim McRae, Bangalla Consulting | Source: MLA, ABARES, ABS, USDA
A wise old man once told me that Australian cattle producers only sell cattle for two reasons; no grass or no money. Unfortunately for the Australian producer, it has been a combination of both in recent years. Devastating drought conditions forcing producers to sell cattle, and mounting debts increasing the urgency for cash flow. So with almost one quarter of 2015 already gone, what is the most likely outlook for the supply of cattle for the remainder of the year?
Over the past two years, the available supply of market-ready cattle has reached record levels (figure 1). Surely this means that supply will contract significantly regardless of the prevailing seasonal conditions? Indeed, as has been experienced in the US for the past few years, while drought may be dominant, the supply of cattle has been so diminished, that record prices result.
After some encouraging rainfall in January for southern Australia, it now appears that the most appropriate summary for seasonal conditions heading into autumn is “patchy, disappointing and rapidly deteriorating”…but still time for a quick improvement if autumn rains prevail.
For northern producers, the coming weeks will be crucial, especially if cyclonic activity can finally come inland, as opposed to skirting the coastal regions. However, it does appear that in northern Australia, there will again be winners (some regions have reportedly registered a favourable wet season) and losers on the seasonal spectrum. That said, the balance will likely lean to drier conditions – which will keep the pressure on turnoff and supply.
One factor that adds to the forecast’s higher than average slaughter levels for 2015, as has been the case in the first part of the year, is the “lure” that high prices offer, dragging out additional cattle – and the lament that they didn’t have more to sell! That said, it must be noted that it would be extremely unlikely to see a repeat of the 2014 monthly record slaughter numbers, regardless of seasonal conditions, as the cattle just won’t be available! In 2014, five of the final eight months of the year exceeded 800,000 head: prior to 2014, the last time slaughter exceeded 800,000 head was in March 1979.
Indeed, given the fast start to 2015, this forecast is for slaughter to now exceed 8 million head…but go nowhere near the 9.23 million in 2014. Thus, if prices so far in 2015 have been “much improved”, even as slaughter maintains pace with the same period last year, what is the prospect for prices if slaughter levels contract by 50-100,000 head per month in the second half of the year?
Note: This article is the first in a series of cattle market outlook articles written by Tim McRae, Bangalla Consulting. Stay tuned for the next article examining the longer term supply outlook and herd impacts.
As witnessed through January 2015, widespread rainfall events are likely to have almost immediate positive impacts on prices (which is usually the case). However, compared to historical levels, the impact will be greatly accentuated, and prices remaining higher for longer, given the continued decline of overall supplies. Indeed, the “concern” surrounding the supply of cattle beyond the immediate supply window has been one of the main reason the cattle prices still remain at very favourable levels, even as slaughter and turnoff rates remain high through early March.
Thus, those producers who have the feed and financial ability to hold cattle and sell when the full impact of the “overdrawn supply account” hits the market are likely to benefit greatly from some very healthy prices and extremely tight supplies for the remainder of 2015.
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