By Angus Brown
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Source: MLA, ABS.
Meat and Livestock Australia (MLA) have released the October update of their industry projections. The updated estimates of herd, slaughter, beef production and exports are basically trying to put some figures around how the drought is going to impact supply down the track.
There was no adjustment in slaughter estimates for 2018 since the July update to the projections. MLA stuck with the 7.8 million head mark (Figure 1), which suggests that slaughter has been as expected over the last three months.
There were some slight changes to slaughter projections for 2019 to 2022, with MLA expecting tighter supplies for the next two years. The rebuilding herd is forecast to allow slaughter to again reach 7.8 million head in 2021.
To assess the impact of the drought, we can look at MLA’s January projections. The January forecast was for slaughter of 7.4 million head, so there have been 400,000 head or 5% added. The herd was forecast to grow in 2018, to 27.55 million head.
Since January MLA have adjusted the 2017 herd higher, which means the fall seen in 2018 has the herd at 27.4 million head. This is just 155,000 head lower than the January projection, but is 2%, or half a million head lower than 2017.
At the start of the year MLA were forecasting average cattle carcase weights at 293kg cwt, but this has now fallen to 290.2kgs per head. The fact that so many cattle are going through feedlots means that despite the increase in female slaughter, carcase weights are still at their second highest level on record.
As always, MLA’s forecasts for 2019 and beyond are based on normal seasons. After this years liquidation there will obviously be a return to herd rebuilding when conditions allow. We can see in Figure 2 that in a good year, like 2011, 2013 or even recently in 2017, the herd can grow much more quickly than the rates projected.
Key Points
* MLA’s October cattle projections update has slaughter levels similar in 2018, but lower in coming years.
* The cattle herd is expected to weaken, but remain above the lows of 2016.
* A return to normal rainfall should see stronger cattle prices in 2019 and 2020.
What does it mean
It’s interesting to see that MLA are not forecasting the herd to fall back to the levels of 2016. The very ordinary season and good prices suggest we could return to levels under 27 million head.
Whatever the final herd numbers, MLA’s projections paint a rosy picture for prices for 2019 and 2020 at least. Lower slaughter and a herd rebuild will see prices improve relative to export values. Export prices are expected to remain robust, which suggests the lows of 2018 might be the weakest prices we see for a few years. This is of course all dependent on a return to somewhere near normal rainfall.
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