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Monday, July 25, 2016

MLA’s Cattle Projections proving close to the mark

By Angus Brown  |  Source: MLA

Key points

  • MLA’s cattle projections are little changed from April, but confirms tights supply in 2016 and 2017.
  • Lower slaughter is expected to be offset somewhat by higher slaughter weights.
  • If MLA’s slaughter projections are correct, the EYCI should remain close to or stronger than the 90CL indicator over the coming two years.

2016-07-25 Beef Fig 1

2016-07-25 Beef Fig 2

2016-07-25 Beef Fig 3

Meat and Livestock Australia (MLA) released their July Cattle Projections update recently, and the numbers were little changed on April. This suggests that this year the projections are looking like being pretty close to the mark at the half way point of the year. The good news for growers is that MLA are projecting supply to remain very weak for years to come, today we take a look at the price impacts.

The basic cattle supply numbers, of the herd size, and slaughter, are both on track to closely match MLA’s projections from earlier in the year.  There were minor changes to the estimates of the Australian cattle herd for the end of 2016.  MLA shaved 37,000 head off their 2016 herd projection to 26.142 million head (figure 1), which will be a 21 year low.

MLA are still expecting 2016 to be the low for the herd, with a very small increase in 2017, before a more rapid increase of 10% over four year.  On figure 1 the herd rebuilt looks very strong, but it is not without precedent.  Between 2010 and 2011 the herd grew by 7%, so there is every chance we could see a more rapid increase than MLA are projecting.

On the slaughter side MLA decreased their 2016 slaughter projection by 200,000 head, on the back of low slaughter rates for the year to date.  A decrease of 3% is not insignificant, and reflects the better than expected rainfall for the year to date. 

MLA are projecting the low for slaughter to come in 2017, also at a 21 year low of 7 million head.  This projection hasn’t changed since April, and it goes without saying that cattle supply next year is expected to be extraordinarily tight.

Due to a continued herd rebuild, cattle slaughter is not expected to return to the 10 year average of 8 million head until 2021.   

In compensation for lower slaughter numbers, average slaughter weights are expected to reach record levels this year, at 288kgs cwt, and continue to increase for the next six years.  The lower herd, means there is more grass per head, to put more weight on cattle.

What does this mean?

Regular readers would know that our cattle market is subject to forces other than just domestic supply, with export markets largely dictating what processors can pay for cattle.  Figure 3 shows how slaughter relates to the spread between the EYCI and 90CL indicator.  MLA’s slaughter projections put the EYCI on a par with the 90CL for 2016, and at a 45¢ premium in 2017. 

Obviously supply projections are rubbery, but there is no doubt that while prices will remain subject to export markets over the coming years, they will stay at the top of the range relative to export values for at least the next two years.

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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