Mecardo Analysis - Sheep slaughter yet to slow

By: "Farm Tender" News
Ag Tech News
Sep 25, 2018
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By Angus Brown | Source: MLA, ABS, Mecardo

Back in August, we reported on the sheep slaughter spike and this was no flash in the pan. Strong sheep slaughter rates have been maintained for the past six weeks, which has quickly ramped up the year to date figures. The annual sheep slaughter estimates will require some revision and there will be some serious impacts on future sheep supply.

The combination of very tight lamb supply and dry weather-induced flock liquidations has seen sheep slaughter rates running hot. Meat and Livestock Australia’s (MLA) weekly sheep slaughter rates for the east coast have numbers peaking at 184,000 head and have been above 150,000 head for the last seven weeks.

Sheep slaughter rates of these proportions are normally reserved for the November and December period and we haven’t even seen that since 2014. The last time east coast slaughter was this strong in August and September was in 2002, but it was a lot higher then, over 200,000 head per week.

Using MLA’s weekly numbers, we can make some rough estimates on how the official Australian Bureau of Statistic numbers might pan out for August and September. Figure 1 shows that we have already seen sheep slaughter outstrip last year’s levels for every month to July. Our estimates show August just tipping over 1 million head slaughtered and September also being much stronger.

The estimates for October to December in Figure 1 are where sheep slaughter will have to be to reach MLA’s May projection forecast of 7.8 million head. There is little chance of annual sheep slaughter being under 8 million head. Five-year average sheep slaughter for October to December will see 9.2 million head for the year. Even the lowest October to December sheep slaughter on record, from 2011 will see annual rates at 8.3 million head.

Figure 2 shows annual sheep slaughter, with the 2018 estimate at 9.2 million head, and the following years according to MLA’s May projections. If sheep slaughter ends at this level, similar to that of 2013, the flock will be back in decline.

Key points

*Sheep slaughter has run hot for the last seven weeks, pushing year to date slaughter much higher than 2017.

* Annual sheep slaughter for 2018 is likely to reach at least a four year high.

* The sheep flock will decline and tight sheep supply should see mutton values at better than a 30% discount to lambs.

What does this mean?

The ramping up of sheep slaughter will no doubt see the flock decline. The extent of the decline will depend on marking rates, and anecdotal evidence suggests these are not going to offer much support to the flock. We could realistically see all of the flock gains made in 2017 wiped off in 2018.

Looking further down the track, we are going to have to see a contraction in sheep supply and possibly lamb supply. In recent months heavy sheep supplies haven’t seen low prices, but the discount to lamb has been large. Figure 3 gives us an idea that the mutton discount to lamb could get to as little as 20-30%, as seen in 2010-11. It depends on where lamb prices end up, but mutton could get very expensive when it rains.

www.mecardo.com.au