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Wednesday, September 30, 2015

Female slaughter must fall or there will be nothing left

By Angus Brown  |  Source: ABS, NLRS

Key points

  • Cow slaughter continues to run at very high levels which appear to be unsustainable.
  • Our calculations suggest that if cow slaughter remained at current levels there would be no cattle left by 2022.
  • The sustainable level of female slaughter looks to be around 3.5 million head, which is 22% below the expected 2015 levels.

2015-09-29 Female Slaughter Must Fall Or There Will Be Nothing Left FIG 1

2015-09-29 Female Slaughter Must Fall Or There Will Be Nothing Left FIG 2

2015-09-29 Female Slaughter Must Fall Or There Will Be Nothing Left FIG 3

There have been plenty of commentators, including here at Mecardo, who regard current cattle slaughter, in particular of females, as being unsustainable. But just how unsustainable is it to kill 4.5 million head of cows and heifers every year? The answer is reasonably stark: if this slaughter rate is maintained, there will be no cattle left in seven years’ time.

In our article last week, “Unprecedented female turnoff not finished yet”, we outlined how Australian female slaughter to July was still running at 35 year highs, as it has been for much of the last 18 months.  This led us to wonder what would happen if female slaughter kept going at these levels, and what was a ‘sustainable’ level, ie the level at which the herd would stabilise.

To try and assess the sustainable level of cow slaughter we looked back at female slaughter and how it related to the size of the herd.  Figure 1 shows annual female slaughter, and the % of the starting herd.  Female slaughter as a percentage of the herd hit a 35 year high of 16%, and while it is expected that female slaughter will fall in 2015, the falling herd means that the percentage will rise again, to 16.3%.

In Figure 2 the female slaughter as a percentage of the herd is plotted against the change in the herd size for the following year.  There are plenty of anomalies in this relationship over the last 35 years, but the relationship is there and it is shown in the green trend line, while the orange line shows the trend over the past 3 years.

If we take a conservative view, and use the steeper trend line of the last 3 years, continued female slaughter at 4.5 million head per year will see it as a proportion of the herd reach 17.6% in 2016, with the herd subsequently falling by 13%.  Figure 3 shows what would happen if female slaughter continued at 4.5 million head for the next 6 years.  The shrinking herd means the female slaughter proportion increases rapidly, and the pace of the herd decline accelerates.  In fact by 2021 the herd would be at just 6 million head, and there would be no cattle left in 2022.

What does this mean?

Obviously female cattle slaughter can’t keep tracking at current levels: it has to fall. We can calculate out the level that is sustainable based on the current herd.  Historically, the level of female slaughter that leads to a stable herd has been between 13 and 14%.  With the herd expected to start 2016 at somewhere around 25.5 million head, female slaughter needs to fall 22% from this year, to 3.5 million head.

One million head of cattle is a lot of supply to take out of the system just to keep a stable herd. A poor season, which would see continued cow supply, challenges this herd stability even further.  Undoubtedly, supply has to tighten significantly: this is positive news for prices.

Mecardo information is provided to assist in your marketing decisions. It contains a range of data and views on the current market. It is not intended to constitute advice for a specific purpose. Before taking any action in relation to information contained within this report, you should seek advice from a qualified professional. The information is obtained from a variety of sources and neither Mecardo nor Ag Concepts Advisory will be held liable for any loss or damage whatsoever that may arise from the use of information or for any error or mis-statement contained in this report. 

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