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By Matt Dalgleish | Source: MLA, USDA, Mecardo
Key points
· The female slaughter ratio for Australia is averaging 56.2% for the 2019 season after another month above 58% noted for June.
· The female slaughter in the USA is elevated too but by a lesser degree, sitting at 48.6% for the 2019 season.
· A cattle herd liquidation phase is well entrenched in Australia, while it looks like it is just beginning in the USA.
A fourth successive month with the Australian Bureau of Statistics cattle data showing the female slaughter ratio (FSR) coming in above 58% signals continued destocking across Australia. An elevated female cattle slaughter ratio in the USA is pointing to a downturn in the herd there too and the beginning of their destocking phase, albeit to a lesser magnitude to what we are experiencing locally.
A fourth successive month with the Australian Bureau of Statistics cattle data showing the female slaughter ratio (FSR) coming in above 58% signals continued destocking across Australia. An elevated female cattle slaughter ratio in the USA is pointing to a downturn in the herd there too and the beginning of their destocking phase, albeit to a lesser magnitude to what we are experiencing locally.
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Figure 1 highlights the seasonal trend for the Australian FSR and shows the June calculation coming in at 58.2%, pushing the annual average for 2019 to 56.2%. Over the last decade, the two highest recorded annual FSR prior to the current record-breaking season was at 50.6% in 2018 and 50.4% in 2014. Considering the threshold for determining a cattle herd liquidation in Australia is an annual average FSR above 47% we are well and truly in destocking territory at nearly ten percentage points above the threshold.
In the USA the female slaughter ratio has been running at elevated levels for much of the 2019 season, registering an annual average figure of 48.6% compared to the 47.2% achieved in 2018 (Figure 2). The threshold FSR for determining whether the cattle cycle is in a liquidation or expansion phase in the USA is similar to Australia, at 47.5%.
The last time the USA FSR was higher than the current season was during the midst of the most recent US herd decline in 2011, when the FSR set an annual average level of 49%. To see an FSR in the USA anywhere near current levels, you would have to go back to 1986 when the annual average FSR came in at 51.1%.
Analysis of the US cattle cycle shows that over the last one hundred years there have been eight cycles of herd expansion and liquidation, lasting between nine to fourteen years and averaging ten years. Expansion phases can last between three to eight years and over the last century have averaged five and a half years.
What does this mean?
We have seen the US cattle herd post an expansion each year since 2015. We are currently in the fifth year of expansion, although with the current year recording elevated female cattle slaughter levels it is likely that it will enter a liquidation phase either this year or next.
Certainly, the historic relationship between the FSR and annual change to the cattle herd in the US suggests that an annual FSR of 48.6% (where it currently sits) suggests a decline in the US herd of around 1% (Figure 3).
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