By Angus Brown | Source: MLA, ABS
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The first four months of 2019 have not been great for the Australian cattle herd. We have been talking for some time about the strong slaughter rates, and more importantly, very strong female slaughter rates, and how this might impact the herd. Meat and Livestock Australia’s (MLA) latest industry projections put some numbers on the negative supply impacts we are going to see in the coming years.
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We all know that with livestock markets, the more you kill now, the fewer there will be later. This works both within seasons and across seasons. When you are killing a lot of females the medium and long term impacts of high slaughter rates ramp up even more.
MLA’s April projections are pointing towards some serious supply deficits in the coming years. MLA is projecting the Australian cattle herd to bottom out this year at 25.2 million head (Figure 1). This is a 7.7% fall from 2018 and 14% below the 2019 peak. MLA was projecting a herd of 26.2 million head in January, so the dry start to the year and the floods in North Queensland have potentially wiped out 1 million head of mainly breeding cattle.
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The 2019 herd will see a few notable records. A 7.7% fall in the herd is the largest since the drought of 1983. The herd will be at its lowest level since 1993. The blue line on figure 1 shows the January herd projection, with the April update basically seeing the growth in the herd running 1 million head behind out to 2022. The herd won’t have recovered to 2018 levels by 2022, so things are likely to be tight for some time.
The smaller herd translates directly into lower cattle slaughter. Figure 2 shows how the dry start to 2019 has shifted slaughter projections. The strong start to the year has seen MLA lift their slaughter estimate for 2019 by 1.3%, but it’s still expected to be 1.7% below last year.
The real hit to slaughter comes over the next three years. MLA’s updated slaughter forecasts are 5% below their January levels. In 2020, cattle slaughter is expected to fall 9%, nowhere near the 19% fall in 2016, but significant nonetheless. The 7 million head expected to be slaughtered in 2020 will be the lowest level since 1996.
The subsequent years will see some growth, with slaughter recovering to 7.4 million head in 2022, but it’s still below the long term average.
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Key points
* MLA’s cattle projections have wiped 1 million head off the herd and 5% off 2020 slaughter.
* The impact of the drought will be felt in supply for at least the coming 3 years.
* Very tight supply is good in the short term, but not great for export markets.
What does this mean?
Large falls in the cattle supply are good for prices in the short and medium term, but it does have consequences. Weakening supply into our export markets combined with high prices opens the door to lower-cost beef producers to take our place. If and when the herd does recover, and supplies ramp up again, we might have some trouble regaining markets at the prices we become used to.
In the short and medium term however, no doubt cattle are going to be in short supply, and if it rains properly very strong demand. Next time we’ll look at what this might do to prices.
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