In the middle of 2018 we looked at the US cattle cycle and investigated whether they had moved to a liquidation phase in their cycle, using the female slaughter ratio as a guide. This analysis follows up on how female slaughter levels in the US behaved for the rest of the 2018 season and what may be in store for 2019.
Click here to recap on the article from July 2018.
Drought conditions across much of the United States during the northern hemisphere summer saw the proportion of female cattle slaughtered as a proportion of total cattle slaughter lift above 47% during the month of July. This saw the female slaughter ratio (FSR) test toward the upper boundary of the normal seasonal range that could be expected for this time in the year – Figure 1.
The FSR remained elevated for much of the second half of 2018, only moving back toward the long-term average monthly trend pattern in November 2018. The higher than average FSR for much the second half of the season saw the annual average FSR come in at 47.2% for 2018, the highest it has been since 2013.
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Analysis of the annual average FSR over the last three decades shows that when the ratio is above 47% the US cattle herd usually declines. The shaded zones on Figure 2 highlight this relationship between the FSR threshold of 47% and annual change to the US cattle herd. The shaded area depicts when the FSR has been above 47% and coincides quite clearly with a herd in liquidation.
The US have been in an expansion phase for the cattle herd since 2014 and analysis of their cattle cycles over the last century shows that the average cycle, from rebuild to liquidation, lasts about ten years. This suggests we may not be far off entering another liquidation phase of the US herd. Certainly, the annual average FSR for 2018 confirms we have just crept over the technical threshold that indicates a liquidation has begun so it will be useful to keep updated on how the FSR trends during the early part of 2019 to see if female slaughter levels remain elevated.
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Key points
* The US experienced elevated female cattle slaughter levels as a proportion of their total cattle slaughter during the second half of 2018.
* The annual female slaughter ratio in the US averaged 47.2% for the 2018 season.
* It is probably too early to call a definite beginning to the US herd liquidation at this stage, but it is worthwhile to keep an eye on the FSR in the US over the coming months to stay informed as to where they sit in their cycle.
What does this mean?
During the early stage of herd liquidation, it is not uncommon to see cattle prices decline as the weight of additional slaughter and production hit the market. However, toward the latter part of the liquidation phase prices often rebound, as consecutive years of herd drawdown eventually tightens cattle supply.
What happens in the US with regards to their cattle cycle and price is important for Australian beef producers over the long term, as around 70% of our beef product is destined for the global market and the global market price is heavily impacted by events in the US. During March the USDA will be publishing their 2019 long term forecasts for the cattle industry, including their expectations for supply over the next decade, which we will use to update our Australian cattle price forecasts. Stay tuned for this in the coming weeks.
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