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Thursday, November 17, 2016

Slaughter numbers point to flock expansion

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

Key points

  • Sheep offtake has fallen to levels consistent to an expansion in the flock size.
  • The lamb offtake has fallen as well, which is consistent with past patterns when the flock increases in size.

2016-11-14 Sheep Offtake Fig 1

2016-11-14 Sheep Offtake Fig 2

2016-11-14 Sheep Offtake Fig 3

In May Mecardo looked at the Australian sheep and lamb slaughter numbers for signs regards change to the sheep flock. At the time seasonal conditions were viewed as the key factor to what the flock size would do. This article refreshes the slaughter data and looks at what is happening.

Since May rainfall has been favourable (too favourable in some spots) with the rolling 12 month rainfall rank the best since 2010. The combination of much improved seasonal conditions and favourable wool and sheep meat prices has seen sheep slaughter numbers drop sharply this season, in the order of 27%. Lambs slaughtered are also down for the season to October by 10%.

Figure 1 helps put the drop in sheep slaughter numbers in perspective by expressing the cumulative number of sheep sent to abattoirs during the past 12 months as a percentage of the flock size (sheep offtake). The rolling sheep offtake from the mid-29180s is shown, along with the estimated flock size. Shaded periods of time represents when the sheep offtake fell below 10.5% (the total adult sheep sold for the 12 month period was less than 10.5% of the flock), hence represents periods when the flock size tends to expand. The full sheep offtake has reached an expansion level.

Figure 2 shows a variation of the sheep offtake indicator constructed using an annualised estimate of a rolling 3 month average of the sheep slaughter numbers. Due to its shorter term nature this leading sheep offtake indicator jumps around more but in times of change such as now it provides a more sensitive view of the change happening to the flock size. It shows that with the drop in sheep slaughter numbers mid-year, the flock moved into an expansion phase as early as August.

There has been some legitimate comment that slaughter numbers only represent part of the balance sheet that determines the flock size. Weaning and death rates are important factors in determining sheep sales and change in the flock size. While this is a fair comment, the long term data on weaning and death rates is nowhere as reliable as slaughter numbers and the offtake proportions have a good historical correlation with changes in the flock size.

Whilst adult sheep slaughter numbers have fallen to the lowest levels since the 2010-2012 period, what has happened to the lamb offtake? Figure 3 shows the lamb offtake, with the flock size overlaid and the shaded areas representing periods of low sheep offtake. The cumulative lamb offtake for the past 12 months has dropped slightly from 33.5% to 32% in recent months, assisted by the 10% fall in actual lambs sent to abattoirs for the season to October. In December 2015 Mecardo looked at a model of the lamb offtake in our December 2015 article ‘A review of Australian lamb offtake’ and concluded that the lamb offtake was likely to continue increasing during the next 2-3 years.

While that underlying trend is very likely to continue, the experience of 2010-2011 shows that it is also likely the lamb offtake will ease while seasonal conditions allow and the drive to increase sheep numbers exists. The dip in lamb offtake this season is consistent with these views.

What does this mean?

The wet winter and early spring have caused some uncertainty with regards to lamb supply. At this stage the minor drop in lamb offtake (representing about 1.5% of the flock for this season so far) along with the drop in sheep offtake is consistent with the underlying patterns of past increases in the flock size. The benefit of the improved seasonal conditions will extend until next autumn, when the uncertainty due to rainfall returns once more. In the meantime expect less sheep and lambs for sale, with firm prices as a consequence, and a slightly larger flock by mid-2017.

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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