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Wednesday, June 10, 2015

We’re still killing the cows and delaying the rebuild

By Angus  |  Source: MLA's NLRS, ABS

Key points

  • The first look at April slaughter figures may suggest supply is weakening and the herd is being rebuilt.
  • However, April slaughter was up year-on-year, with female slaughter in Queensland up 14%.
  • The herd liquidation seems to be continuing, with high female slaughter percentages pushing the recovery further into the future.

2015-06-10 Cattle Slaughter FIG 1 V2

2015-06-10 Cattle Slaughter FIG 2

2015-06-10 Cattle Slaughter FIG 3

A cursory glance at the April cattle slaughter figures released by the Australian Bureau of Statistics might suggest that cattle supply is on the wane, and the herd rebuild might be beginning. However, when we take a closer look at the numbers it becomes clear that the herd is still on the decline, further delaying the recovery.

April 2015 cattle and calf slaughter fell 10% on March, with 803,400 head being processed.  On the surface, a 10% fall seems large, which might suggest tightening supply and a move towards herd rebuilding.

However, when we look at the long term slaughter chart (figure 1), we can see that March slaughter was still in the upper echelon of historical slaughter. And more importantly, the 12-month moving average is still moving higher.

April cattle slaughter is traditionally lower than March as a result of Easter and Anzac Day. On average, throughput falls 9%.  In fact, April slaughter was 7% higher than last year and just 800 head shy of the record April figure of 2008, which was a 30-year high.  The April 2015 figures took the run of year-on-year increases in monthly slaughter to 31 months.

Looking at cow and heifer slaughter gives an idea of herd rebuilding intentions. The fact that female slaughter was again higher than last year, this time up by 7% (figure 2), suggests that the herd is continuing to be run down.  There were no surprises to see the increase in female slaughter was driven by Queensland, where year-on-year female slaughter was up 15%.

Male cattle slaughter was also higher on last year in April, up by 7%. This is interesting as we would expect the recent poor seasons to start being reflected in lower male cattle supply, even if female slaughter was holding up because of continued herd liquidation. 

The continued strong steer slaughter may be caused by cattle being slaughtered at younger ages because of the increase in lotfeeding.  This simply decreases the supply of grassfed heavy cattle down the track and should continue to support these prices, which are at record highs.

What does this mean?

Figure 3 tells much of the story of growers’ herd re-building intentions, or lack thereof.  With year-on-year slaughter still rising, and the proportion of females killed running at 53%, there is still more breeding stock being killed than heifers being born to replace them.

The higher prices this year are no doubt encouraging further herd liquidation. And the lack of rainfall in northern areas is continuing to thwart herd rebuilding efforts.  A decent wet season in northern NSW and Queensland will swing the market towards a herd rebuild and a sharp contraction in supply. Continued dry weather, on the other hand, is likely to see supply continue to track along at current levels. 

Supply seems to have weakened enough to be meeting demand, rather than overwhelming it, at least for the moment. This should help strong prices remain in place for the medium term. 

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