By Matt Dalgleish | Source: MLA, ABS, Mecardo
In October 2018 we looked at how restocker behaviour at the saleyard can give us a clue to the female slaughter ratio and provide notice as to the status of the cattle cycle, such as if we are in liquidation or rebuild phase. This analysis provides an update to the earlier article, showing what restocker activity since the start of 2019 suggests for the cattle herd.
Recap on the October 2018 analysis here.
The female slaughter ratio (FSR) is our best indicator of the status of the cattle cycle. An annual average FSR below 47% indicates we are in a herd rebuild, while above 47% suggests herd liquidation. However, the female slaughter data that allows us to calculate the FSR is released by the ABS over one month lagged, so data for December 2018 was only published last week. The December FSR lifted to levels not seen since September at 51.2%
This ABS data shows that for the 2018 season the FSR posted an annual average of 50.5%, well above the 47% threshold and demonstrating that the herd liquidation was well entrenched (Figure 1). In the October 2018 analysis, we decided to test if data showing restocker saleyard behaviour could allow us to predict the likely FSR for the months ahead, giving us a glimpse into the status of the cattle cycle and if we were de-stocking or rebuilding.
We were able to construct an implied FSR, based on restocker saleyard data, that could be used to forecast the forthcoming actual FSR levels. Figure 2 demonstrates the pattern set by the rolling 12-month average for the actual FSR and the implied FSR. It shows that the implied FSR level has acted as a reliable guide for the actual FSR for much of the last decade.
Indeed, in our October 2018 analysis, we used the implied FSR to predict that the October 2018 actual FSR would be around the 49-50% level for that month, as the implied FSR was showing a level of 49.8%. When the October data was released (last December), it showed the actual FSR was calculated at 50.4%, just 0.6 percentage points above what the implied FSR was suggesting over a month earlier.
Key points
* ABS cattle slaughter data for December shows that the female slaughter ratio finished the season firmly, lifting to levels not seen since September, at 51.2%.
* The annual average female slaughter ratio for 2018 came in at 50.5%, demonstrating the herd liquidation remains entrenched.
* Current restocker behaviour suggests the start of the 2019 season will see monthly female slaughter ratio levels similar to the average pattern set for the 2014/15 seasons.
What does this mean?
Crunching the numbers on restocker saleyard behaviour for January and the first week of February suggests that we are going to see a similar start to the year in 2019 to the average pattern set by the 2014/15 season, as shown by the green line in Figure 1.
The implied FSR calculation has the January 2019 FSR at 49.1% and the preliminary February 2019 FSR at 51%1. The ABS release their January figures in early March 2019, so keep an eye out for the actual FSR results to see how accurate we are this time around.
1 – Please note that the February 2019 implied FSR has only been calculated off the first week of February restocker cattle sales, so is still subject the change as the month progresses.
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