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By Angus Brown | Source: MLA, ABS, Mecardo
Key points
· Cattle slaughter forecasts for 2019 are looking like they might be surpassed.
· Cattle supply will need to be 4.6% tighter than last year in the next four months to hit targets.
· Finished cattle prices are likely to remain strong, and get a solid lift with any tightening in supply.
Last week we reported on the latest Meat and Livestock Australia (MLA) cattle projections, with one of the main points being a large increase in slaughter for 2019. This week we delve a little deeper into short term supply to find out whether we are set for tightening supply or yet another lift in 2019 cattle slaughter expectations.
There is always a delay in the writing of major projections and their release, which can sometimes make forecasts look a little off not long after they are released. During abnormally dry times and high slaughter levels, this can happen quickly.
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MLA pegged 2019 national cattle slaughter at 8.1 million head. Official Australian Bureau of Statistics slaughter numbers for the year to June have seen 4.12 million head moving through processors. With some improvement in seasonal conditions in the south, and a declining herd, another 4 million head for the second half of the year was a reasonable estimate.
Move on another two months and MLA's weekly slaughter statistics are suggesting July and August have seen around a further 1.5 million head of cattle exit the system. This leaves just 2.47 million head for the last four months of the year.
Figure 1 shows how another 2.47 million head would be distributed under normal supply seasonality. If it were to rain, national slaughter could easily hit the 8.1 million head number for 2019. Slaughter would be 4.6% below the same time last year, but still 5.5% above the levels of 2017.
The latest Bureau of Meteorology (BOM) doesn't fill us with much confidence around rainfall and tightening cattle supply, but we'll take a look at how prices might pan out.
The long, continued dry has seen finished cattle prices diverge from store cattle, and figure 2 shows the NSW Trade Steer has been tracking above last year's levels despite stronger supply.
If slaughter were to fall to the levels which will get us to 8.1 million head annual slaughter, very strong finished cattle prices could be expected. Most likely trade and heavy steers would be north of 600¢. Some southern over the hooks rates are there already.
What does this mean?
The main thing we can take out of this analysis is that 2019 cattle slaughter is likely to surpass the forecast of 8.1 million head. It would take stronger than normal seasonal tightening in supply to see slaughter match last year's levels, and this would still put annual slaughter at 8.2 million head.
This then means that there will be fewer cattle for slaughter in 2020 and a smaller herd, which is supportive of medium and longer term prices.
In the short term, demand from export markets is propping up slaughter cattle prices and should continue to do so. Any tightening in cattle slaughter rates will see a lift in prices, but even at current strong levels, finished cattle prices should remain good.
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