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Wednesday, May 20, 2015

What you need to know about the drivers of flock size

By Andrew Woods, ICS  |  Source: AWPFC, MLA

Key points

  • Level of lamb offtake has no correlation with changes to the Australian flock size.
  • Lamb sales have risen from 50% of all sheep sold to abattoirs in the mid-1990s to around 70% in 2014.
  • Adult sheep offtake explains about half of the change in the flock size.

2015-05-20 Flock Size Drivers FIG 1

2015-05-20 Flock Size Drivers FIG 2

2015-05-20 Flock Size Drivers FIG 3

Standard analysis of the Australian sheep flock (or cattle herd) uses a balance sheet approach. This is similar to the stock schedule for a farm flock (herd) where national opening numbers are adjusted for natural increase, sales and deaths to arrive at a closing number. This analysis of the drivers of change in flock size suggests that the balance sheet approach has inadequate information to operate effectively.

Feedback from various sources suggests that the weaning rate in the Australian flock is rising, for both merino and crossbred sheep. Figure 1 compares the lamb offtake (number of lambs sent to slaughter expressed as a proportion of the flock) from the mid-1990s to 2014 with the coincident change in flock size. There is no correlation between the two series. The change in the flock size can be lagged by a year and the correlation remains close to zero. The same correlation shows up if the data is restricted to the past decade.

Figure 1 says that the mechanism by which the flock size is adjusted is not linked to the proportion of the flock sold to abattoirs as lambs.

What makes this proposition very interesting is the relative size of lamb sales to adult sheep sales (to abattoirs) of recent years. Figure 2 shows the proportion of lamb to adult sheep sales from the mid-1990s onwards. In the mid-1990s, sheep sales were about the same as lamb sales. Now, lamb sales are twice that of sheep sales, accounting for 70% of sheep sold off-farm to abattoirs. The level of lamb sales has not been a guide to changes in the flock size.

Figure 3 compares the adult sheep offtake (sales to abattoirs expressed as a proportion of the flock) with changes in the flock size since the mid-1990s. The sheep offtake explains around one third of the change in flock size.

If the data is extended (to the 1970s) or shortened (for the past decade) or if the decidedly dodgy estimate in 2000 that the flock lifted by 3% is removed, the correlation rises to around 0.5. Basically the level of adult sheep sales explains about half of the coincident change in the flock size. This looks to be the mechanism by which the flock size is adjusted, as it is in New Zealand.

Increasing weaning rates explains the increase in lamb offtake in the Australian flock. To develop an effective balance sheet analysis of the Australian flock requires a good estimate of weaning rates, which is difficult if it is changing. 

What does this mean?

The standard balance sheet/stock schedule analysis of the Australian flock is struggling to explain sustainable (neutral effect on the flock size) levels of lamb and sheep sales. This seems likely to stem from an increasing weaning rate in the Australian flock, which is a structural change in the industry.

Factors such as weaning and death rates are difficult enough to measure if they are reasonably stable, let alone if they are changing beyond normal year to year variation. In terms of sales to abattoirs, sheep sales expressed as a proportion of the flock are our best, immediate indicator of the likely change in flock size. That said, this only explains about half of the changes happening.

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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