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Wednesday, March 14, 2018

A de-stock or a load of crock?

By Matt Dalgleish  |  Source: MLA, ABS, Mecardo

Key points

  • The Queensland restocker spread to the EYCI has lifted to an 8.6% premium, well above the seasonal historic range for this time in the year and suggests the incentive to rebuild the herd remains robust.
  • The female slaughter ratio in Queensland has returned to long-term seasonal average levels for January at 39%, after reporting an elevated ratio in the final quarter of 2017.
  • The underlying EYCI data, which can act as an early warning signal for herd stocking intentions, favours a herd rebuild remaining underway.


2018-03-14 Cattle Fig 1

2018-03-14 Cattle Fig 2

2018-03-14 Cattle Fig 3

In February we looked at the question of whether the herd liquidation was underway in Queensland and concluded that it was too early to call, but that the underlying EYCI data indicated that it was unlikely. The release of the January ABS figures on female slaughter and analysis undertaken on annual herd change and the female slaughter ratio in Queensland seems to suggest that the notion of a de-stock being underway (as some industry pundits had proposed) is a load of crock.

As outlined in our February analysis the underlying EYCI data for restocker purchase activity in saleyards north of Dubbo, and more specifically within Queensland, indicated that both price premiums that restockers in these regions were paying above the EYCI and volumes of EYCI cattle going to restockers  which suggested that optimism among this group remained high since the start of 2018.

Recent rains to Queensland have seen the restocker spread to the EYCI lift significantly in the last fortnight to see it sitting very much above normal levels for this time in the season at a spread premium of 8.6% - Figure 1. The willingness of restocker buyers in Queensland to pay above the odds for young cattle shows the incentive to rebuild the herd remains robust.

Furthermore, the release of the January 2018 cattle slaughter figures from the ABS last week shows that the proportion of females slaughtered as a percentage of the total kill in Queensland has returned to average seasonal levels at 39% – Figure 2.  The current January female slaughter ratio for Queensland is very much below the elevated levels seen during the 2014/2015 season that were indicative of a herd liquidation phase, ranging between the 45% to 50% zone for much of these two years.

Indeed, long term analysis of the relationship between the female slaughter ratio for Queensland and growth/decline in the national herd seems to suggest that when the rolling twelve-month average ratio is sustained above 41% it is broadly indicative of a herd liquidation phase, while a ratio below 41% suggests a rebuild is more likely – Figure 3. 

What does this mean?

The current rolling twelve-month average slaughter ratio for Queensland female cattle sits at 41.1%, up from 40.4% in December. At this level it is pretty much within the “sit on the fence” category as to whether the incentive is for a herd rebuild or a liquidation.

However, the underlying EYCI data (which is reported on a timelier basis than the ABS slaughter data) shows that there is still an appetite to purchase young cattle coming from Queensland restockers and this, combined with the recent rainfall across much of Queensland, supports the Mecardo view that a herd rebuild remains underway.

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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