By Andrew Woods, ICS | Source: ABS, AWPFC, ICS
Since reaching a base level of around 70 million sheep in 2010, the Australian sheep flock has varied between 70 and 75 million. So will it go up, down or stay the same from here? In this article, we take a look at the sheep offtake, a key indicator of flock change, to get some idea.
Mecardo last looked at the background to the sheep offtake in late March. As a reminder, the sheep offtake is defined as the number of adult sheep sent to abattoirs during the past 12 months expressed as a proportion of the flock.
Sheep offtake is the “swing” factor that farmers use to adjust their flock size with in response to enterprises decisions and seasonal conditions. As such, it is a good gauge of farmer intentions as to whether the flock is expanding or contracting. The general rule is that, when the sheep offtake is above 10-11% then the flock tends to contract and, when below, it is expanding.
By rights, live sheep exports and any flock reduction programs (such as in the early 1990s) should be incorporated into the sheep offtake. For the time being they have not been added in order to keep calculations simple and, in some cases, because of a lack of data (such as the losses due to OJD programs). Including live sheep exports does not change the relationship greatly, except they lift the threshold sheep offtake from 10-11% to around 14%.
Figure 1 shows the sheep offtake since the mid-1980s, along with the Australian flock size. The grey shaded area is where the offtake is below 10.5%, flagging periods when the flock is expanding. During 2014 the sheep offtake remained stubbornly around 14%, but sheep meat and wool production have so far remained above year earlier levels in 2015.
To assess current trends more keenly, figure 2 shows another estimate of the sheep offtake, using only three months of data expanded out to annual estimate. This “leading” sheep offtake estimate jumps around more than the main sheep offtake estimate, but it gives an earlier indication of farmer intentions. In June, the leading sheep offtake fell below 10%, flagging a flock expansion in the coming season. The one rider to this projection is the need for adequate rainfall during 2015-16.
How does this help? An expanding flock means increases in wool production, increases in lamb production and, given a reasonable spring, reduction in the supply or mutton. For the lamb price, which is more sensitive to changes in supply than wool, this means downward pressure on lamb price.
Read next article: What's rain likely to do to the flock size?
As always with farm production, spring rainfall will have a large bearing on volumes. At this stage, the sheep offtake is telling us that farmer intentions are to expand the Australian flock in 2015-16, seasonal conditions allowing. To achieve this outcome, the supply of mutton will fall and, assuming the lamb offtake remains above 30%, lamb supply will pick up as the season progresses. Wool production will also increase: the question being in what micron categories?
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