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Tuesday, November 28, 2017

Qld slaughter back online so what’s changed?

By Angus Brown  |  Source: MLA, ACA

Key points

  • Cattle slaughter was stronger than last year from June to September, but lower for the year to date.
  • Higher carcase weights sees beef production running slightly higher for the year to September.
  • Increased cascase weights might be keeping a lid on cattle prices in spite of tighter slaughter.

2017-11-28 Cattle Fig 1

2017-11-28 Cattle Fig 2

2017-11-28 Cattle Fig 3

The last week has given us a couple of important pieces of cattle supply data that we can use in our slaughter and price forecasting. Firstly, the September ABS slaughter numbers and beef production data is out, and more importantly, after six weeks in the dark, MLA are again reporting Queensland weekly slaughter data.

September Australian Bureau of Statistics cattle slaughter data showed Australian cattle slaughter weakening to a five-month low. However, slaughter did spend its fourth month in a row above last year’s level, to the tune of 12%. The dry winter in NSW and Queensland has now seen year to date cattle slaughter to September just 2% below 2016, having been at an 11% deficit at the end of May.

More interesting however is the fact that beef production for the year to September has been 1.4% higher than 2016.  Fewer cattle for more beef means cattle must be heavier. The simple calculation of dividing beef production by cattle slaughter gives us average cattle carcase weights of 296 kg/head in 2017, a full 10kgs or 4% higher than the figure to September 2016.

Figure 2 shows that cattle carcase weights have never been higher than in 2017. The large numbers of cattle on feed, combined with retention of young cattle earlier in the year, has seen cattle carcase weights outstrip those seen in 2011 and 2012 by 9kgs per head.

As we’ve previously mentioned we have been flying a bit blind on cattle slaughter since September, as MLA’s weekly numbers for Queensland have been unavailable. We now have three weeks of data for November, which shows east coast cattle slaughter has again slipped below last year’s levels (figure 3).

We outlined in Friday’s weekly comment the fact that export beef prices are stronger than last year, while slaughter has been lower, which should lead to higher prices. The reason we are not seeing higher prices than last year could be due to the higher cattle weights. If carcase weights are still 10kgs higher, beef production is likely to be higher than last year still.

What does this mean?

An extra 10kgs per head is a significant lift in cattle carcase weights. It means that for every 10 tonnes of beef, processors have to kill one less animal. Effectively the higher carcase weights mean demand for live cattle from processors is weaker than it would otherwise be.

With well over 1 million head of cattle on feed, and a large carryover of cattle from last quarter, we expect the higher carcase weights are likely to continue in the cattle market. This is another indication that cattle markets might find it hard to rally further unless it is driven by restockers.

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