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Thursday, November 26, 2015

Queensland driving Australian cattle slaughter lower

By Angus Brown  |  Source: MLA's NLRS

Key points

  • East coast cattle slaughter has fallen heavily on last year, with Queensland the main driver.
  • Southern states still appear to be liquidating the herd, with continued high slaughter compared to any time prior to 2014.
  • Demand from export markets has weakened, to see lower or steady prices despite weaker slaughter.
  • Stronger export prices are likely to be required to see further rallies in slaughter cattle prices.

2015-11-25 Cattle Slaughter FIG 1

2015-11-25 Cattle Slaughter FIG 2

2015-11-25 Cattle Slaughter FIG 3

Cattle slaughter is on the wane following an extraordinary time at record levels. In the last two weeks, we’ve seen east coast cattle slaughter at the lowest level for this time of year since 2012, and below the five year average. This article looks at where the falling cattle supply is hitting, and how prices are being, and might be, impacted.

The MLA statistics on east coast cattle slaughter have fallen heavily in the last fortnight.  The last two weeks have seen 18% fewer cattle slaughtered on the east coast than this time last year. Interestingly, however, the numbers are actually still 2.5% higher than the average of the five years from 2009-2013.

If we break down the recent slaughter figures into states, we can see where the real dearth in supply is hitting.   Figure 1 shows Queensland cattle slaughter has fallen 23% from winter levels, and is at the lowest level for this time of year since 2009.

Queensland has seen some reasonable, but not drought breaking, rains in November.  This rain has been enough to encourage the holding of cattle in the hope good wet season rains arrive in December or early January. 

In the southern states, slaughter is 15% lower than last year (figure 2), but is still at a similar level to 2013 and the second highest on record for this time of year. The very dry weather in Victoria and SA seems to mean that the southern herd is possibly still in liquidation phase.  It would be interesting to see what slaughter did with a good spring in the south.

Markets have largely behaved as we would expect with the changes in supply.  Figure 3 shows that Queensland heavy steer and cow prices have returned to the peaks of September, while in Victoria the same categories are making 10% less money than in September.  Of note is that Victorian heavy steer and cow prices are on a par with those in Queensland, which suggests demand has weakened.

We know that US export markets have declined markedly, which helps explain weaker demand in the slaughter cattle market.

What does this mean?

Weaker cattle supply, and prices that are steady or lower than recent peaks, suggests demand has weakened.  A return to the 600¢ mark for heavy steers, and 550¢ for cows will require some improvement in US export prices. This, however, is not out of the question.

On the supply front, we are likely to see slaughter fall further in January. Cattle that have come early in the south will obviously not be there, and a decent wet season in Queensland will mean its slaughter is unlikely to rise.  Tightening supply of this proportion might see export prices rise, which will flow through to cattle markets.

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