By Matt Dalgleish | Source: MLA, Mecardo.
The proportion of female cattle slaughtered as a percentage of the total cull provides a reliable indicator as to the status of the herd rebuild or liquidation. However, the female slaughter ratio is a lagged indicator. Is there a timelier measure to help us understand the dynamics of the cattle cycle and act as a predictor to the female slaughter ratio?
Recent and decent rainfall across much of the Eastern seaboard has seen restocker optimism lift, according to the behaviour of the weekly restocker spread pattern (Figure 1). The EYCI restocker spread has moved from a 5.3% discount to a 0.4% premium in the last four weeks. This is the first time since early May that the restocker spread has been at a premium.
This got the team at Mecardo wondering if the increased restocker optimism signalled any change to the liquidation phase currently impacting the herd. The best measure of the status of herd liquidation or rebuild is the female slaughter ratio (FSR), which shows the proportion of female cattle slaughtered as a percentage of the total cull level. Unfortunately, the FSR is calculated from ABS data and is lagged by about a month and a half so we are not yet able to see if the recent rains have started to impact female slaughter levels.
Analysis of the relationship between the annual average FSR and annual average restocker spread shows that there is a reasonably good correlation between the two. Indeed, data from the last eight years shows that during a herd liquidation phase (when the FSR is above 47%) the annual average restocker spread has been below a 2% premium. Conversely, when the herd has been in rebuild (as identified by a FSR below 47%) the annual average restocker spread has been above a 2% premium (Figure 2).
Read the last two Mecardo pieces featuring the FSR below:
Key points
* The restocker spread has returned to a premium for the first time since early May on the back of recent widespread rainfall.
* The restocker spread pattern can be used as a lead indicator as to the likely direction of the female slaughter ratio.
* The improved optimism of restockers isn’t enough to suggest a return to a herd rebuild at this stage 3
What does this mean?
Using the relationship between the FSR and the restocker spread as a guide we created a monthly implied FSR based on the weekly restocker spread data acting as a lead indicator (Figure 3). The recent improvement in the restocker spread has seen the implied FSR decrease from 57% to 52%.
Overlaying a similar magnitude decline to the actual monthly FSR suggests that the October 2018 female slaughter ratio (not available until the ABS data is released in December) will come in at around 47-48% and should demonstrate that the herd liquidation is still underway despite the recent rains.
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