By Matt Dalgleish | Source: USDA, NCEI, NESDIS, NOAA, Mecardo
Last month we released an analysis on the Australian herd which highlighted that dry conditions have forced a move into liquidation phase for producers. The annual proportion of female cattle slaughtered as a percentage of total slaughter had crept above the 47% threshold - which signifies herd destocking. However, the US is going through a drought too, so we thought it prudent to see where they are placed in their cattle cycle.
Recap on the Australian female slaughter ratio article here.
Anecdotal reports from US beef cattle regions suggest that the USA is also experiencing drought conditions over much of the country. Indeed, the US drought monitor map for July demonstrates that significant areas of the nation are suffering under intense drought (Figure 1).
Analysis of the seasonal female slaughter ratio for the US, which compares the level of female cattle turnoff as a percentage of overall turnoff shows that compared to 2017 the current season has seen an increase in the proportion of female cattle culled (Figure 2). The slaughter ratio for June has lifted above the ten-year average pattern for the first time this season, suggesting the dry conditions may be starting to have an impact on herd numbers as producers are looking to lighten their holdings of breeding stock. On an average annual basis, the US female slaughter ratio currently sits at 46.6%.
However, in comparison to the 2012 season (when the US herd was amid a liquidation phase), the current pattern in the female slaughter ratio is yet to suggest that a destock is underway in the US in earnest.
Historic annual changes in the US herd shows that the threshold for whether the cattle cycle is in rebuild or destocking phase is the same as Australia, at around the 47% level for the annual female slaughter ratio. During the last thirty years, the US has seen three distinct cattle cycles made up of a herd rebuild followed by a period of liquidation; 1991 to 2004, 2005 to 2014, and 2015 to the present.
Broadly speaking when the female slaughter ratio has been under 47% it has been reflective of a herd rebuild phase, with the annual change in the US herd in positive territory. In contrast, a female slaughter ration of above 47% has signified a herd liquidation (Figure 3).
A continuation of the dry conditions impacting the US into the second half of the year will encourage a higher proportion of breeding stock to be turned off and could see the female slaughter ratio creep above 47% and into herd liquidation territory.
Global weather models are suggesting a move to an El Nino weather cycle is likely into the final stages of 2018, so a continuation of the dry spell in the USA is a real prospect. Cattle prices often come under pressure in the early stages of a herd liquidation, as has been in the case within Australia this season. Any move in the US to a herd destocking phase will likely flow through to pressure on global cattle prices and act as another headwind facing Australian markets.
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