By Angus Brown | Source: ABS, MLA, NLRS
The big news in cattle markets over the last week has been Indonesia cutting the Australian cattle live export quota from 250,000 head in the September quarter in 2014, to 50,000 head this year. While this will have an impact on live export prices in the north, most commentators are not expecting it to move southern values.
While the commentary has focussed on the change in the quota, most have failed to note that Australia did not fill the quota last year. That said, the new quota is still well below the number exported.
Figure 1 shows the monthly live export figures for 2014 and 2015, and the Indonesian quota for July, August and September. In the September quarter last year, Australia exported 184,177 head to Indonesia. This was unlikely to be beaten this year given the fact that 2014 was a record live export year, and the expansion we’ve seen in ‘other’ live export markets.
Taking a simple view, the lower live export quota means that a maximum of 134,177 head will have to find a market other than live export during the current quarter. On a monthly basis this is 44,725 head. The extra live export cattle equate to around 5.5% of last year’s September quarter national slaughter (figure 2). In the current market, this would be unlikely to see prices move very far, especially given the expected contraction in cattle supply expected in the coming months.
Realistically, the cattle displaced by the decrease in the live export quota are likely to be store or feeder cattle, rather than slaughter cattle. Again, the feeder market, which would be the one potentially influenced, is again generally pretty tight for supply at this time of year.
Figure 3 shows how an extra 134,177 head would impact on the placements of cattle on feed in the September quarter, when added to the five-year average. If all the extra cattle flowed into feedlots in the September quarter, we would see placements of cattle on feed increase 7% on last year, and it would be a record for the quarter. That said, cattle on feed placements would still be lower than the levels of December 2014.
Generally, when there is a dramatic shift in market access, the displaced cattle are sent to a variety of different markets. In the case of live cattle, which are generally exported to Indonesia, they are likely to be split between going to other live export markets, slaughter and feedlots. Depending on the season, some may go to restockers to be grown out for export slaughter markets, which are currently very strong.
The impact of the extra cattle would be small if they went to slaughter or feedlots, but when split up the impact will be even smaller. While those selling cattle in the Northern Territory will be hit with higher freight rates to get cattle to markets, there is unlikely to be a noticeable impact on southern cattle markets in the short term.
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