By Angus Brown | Source: MLA, ABS.
Cattle slaughter has been running well ahead of the last eight months, but there is a good chance this will come to an end over the coming quarter. With plenty of rain forecast for the east coast over the coming week, supply should tighten, which is likely to bring a solid start to prices in the New Year.
The latest official cattle slaughter statistics from the Australian Bureau of Statistics (ABS) confirms that up to October, cattle slaughter was still running well ahead of last year. In fact, in the eight months to October 12%, or over 500,000 head more cattle exited the system than last year.
Cattle slaughter is well on track to be the strongest in three years and the fourth highest for the last ten years. This year will only be behind the drought-affected slaughter rates of 2013-2015.
The herd hasn’t recovered from the liquidation of the 2013-14 drought and we know from female slaughter rates that any herd increase we did see in 2016-17 has been reversed this year.
The rain forecast for the coming week is widespread and heavy. At the end of 2014 and early in 2015 we saw similar rainfall and then more. Cattle supply and slaughter did tighten in 2015, but it took until 2016 for the herd rebuild to get back into full swing.
A wet summer won’t see the supply of grain-finished cattle tighten, but it will keep a lot of cows at home. When the seasons are good, there is still good money in producing cattle and as such, we’d expect a rebuild to see slaughter decline to levels similar to early this year, if not back at the lows of 2017.
With tighter supply of cattle in general, finished cattle prices should strengthen somewhat, but it is restockers who will drive the market higher over the summer. From the start of December 2015 to the end of January the Eastern Young Cattle Indicator (EYCI) gained 34% to reach new records at that time (Figure 2).
Key points
* The latest ABS slaughter statistics show a continued strong increase in cattle slaughter.
* With the rain forecast, slaughter supply should slow and restocker demand increase.
* The EYCI could open January up to 10% higher if follow up rain is received.
What does this mean?
The EYCI is rarely steady over the Christmas break. Last year’s 3% decline was a bit of an anomaly, with the market usually moving further. A price change in the order of 10% is not unusual, with good rainfall seeing a jump higher and no rainfall a strong decline.
The rain forecast for this week is a good start and any significant follow up could see the market open at levels similar to those we saw at the start of 2018.
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