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Thursday, May 12, 2016

Sheep offtake indicates flock close to expansion

By Andrew Woods  |  Source: ABS, AWPFC, MLA, ICS

Key points

  • The sheep offtake looks poised to fall to levels that are consistent with the flock increasing in size.
  • As expected the lamb offtake has continued to rise.
  • While the general rising trend in the lamb offtake is expected to continue for the next 2-3 years, depending on seasonal conditions it may steady in 2016-17.

2016-05-12 Sheep Offtake Fig 1

2016-05-12 Sheep Offtake Fig 2

2016-05-12 Sheep Offtake Fig 3

 

Despite the dry conditions of the past year farmers have been selling a declining proportion of the flock as adult sheep (sheep offtake). In light of recent rainfall in both eastern and Western Australia this article takes a look at the recent trends in sheep offtake.

In November Mecardo looked at the sheep and lamb offtake, ’Has merino wool production stopped falling in Australia’ noting how the sheep offtake had persistently remained above 12% in recent years, flagging downward pressure on the flock size. The one positive feature of the sheep offtake (the rolling 12 month sum of adult sheep sold to abattoirs expressed as a proportion of the flock size) since late 2014 has been its gradual decline despite continued dry conditions (on average) across the different wool/sheep  production regions. The explanation for this seems to be that farmers do not want the flock size to decrease.

Figure 1 shows an update for the sheep offtake using full ABS data to March and then MLA slaughter data for eastern Australia for recent months. Despite the declining trend in the sheep offtake, it remains around 11.8%, well above its neutral level of 10-11%.

Figure 2 shows an update of the more short term lead indicator for the sheep offtake, which uses annualised monthly data which is then smoothed by 3 months. This indicator has dropped to 10%, which is at the bottom of the neutral level for adult sheep sales, and close to an expansionary level. Median seasonal rainfall is all that is required to keep pushing adult sheep sales lower, and in doing so allowing the flock to start rebuilding.

In November Mecardo displayed the correlation between a wool/lamb price ratio and the lamb offtake (rolling 12 month sum of lambs sold to abattoirs expressed as a proportion of the flock size) and surmised that the lamb offtake should be expected to keep rising for the next two to three years. Figure 3 shows an update of the lamb offtake, which has reached 33.5%. This is the highest level for the available ABS data (from 1973 onwards).

Will the lamb offtake drop if seasonal conditions allow the flock to rebuild in 2016-2017? During the past two periods of flock expansion in the late 1980s and in 2011-2013 the lamb offtake did fall, so the answer is yes, to a degree. The main mechanism for varying the Australian flock size has traditionally been by changing the number of adult sheep sent to the butchers, hence the focus on the sheep offtake.

What does this mean?

As has been the case in recent years the direction of the flock size in 2016-17 rests largely with seasonal conditions. However the sheep offtake is likely to fall in the coming months, allowing the flock to start to expand. How this progresses in 2016-17 will depend greatly on spring rainfall. Given the seasonal conditions the lamb offtake should steady, and in doing so will help the sheep meat markets, both mutton and lamb.

 

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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