Perspective on beef projections

Underpinning MLA projections is a view that female cattle slaughter is running at a low level and that higher carcass weights seen in the last quarter of 2016 will carry through and influence outcomes for 2017.

There is also the view that seasonal conditions overall have been sufficient to allow herd rebuilding to get underway resulting in an expectation that additional supply will begin to occur in late 2017 and be sufficient to exert downward market pressure in 2018.

To put the projections into some sort of perspective it is useful to look at where the key indicators stand now at almost four months into the year.

As at April 14, national (east coast) slaughterings (according to MLA figures) are a little over 13pc behind same period last year.

Add in reduced kills for last week and this week due to Easter and Anzac Day and the comparative position will push out to a difference of well over 14pc by end of April.

That leaves the remaining eight months of the year for numbers to increase sufficiently to achieve the prediction that 2017 will vary by only 3pc on 2016 slaughter level.

MLA predicts numbers will pick up in May and June and build steadily onwards.

Expectation of a May surge would seem reasonable enough with onset of first round musters in the far west and progressive return to turnoff from those areas affected by Cyclone Debbie as country dries out and road and rail infrastructure is repaired.

Last year’s surge pushed May numbers up into the high 140,000 range but it was all over by mid-June with weekly kill numbers progressively falling to a low of 101,000 by early October.

The wet winter was a factor particularly for holding cows back that might otherwise have gone to slaughter but if there were any numbers of killable male cattle in that third quarter they would have found a way to get to market with the ox price almost nudging 600c/kg.

Just where the continued growth in numbers is expected to come from in the third quarter this year is not explained.

Certainly MLA does not expect to see a jump in female numbers.

Their contention is that the proportion of females in the kill over the October 2016 to January 2017 period at 42pc is the lowest ever and therefore a strong pointer to ongoing retention of females in the herd.

But there are two significant factors to be considered about that rationale.

Firstly as already mentioned, the mild wet winter allowed producers to hold existing cow numbers to see whether a wet summer season would occur.

But a widespread wet summer did not occur so it is not unreasonable to expect some further herd reduction in the months ahead.

Secondly, the 42pc female-kill statistic as an indicator of herd rebuilding may not be reliable.

MLA has identified that the percentage of females in the kill has fallen but an examination of the combined Queensland and New South Wales kill suggests it may not yet have reached classical herd-rebuilding range.

2012 was the third year in succession of post-drought herd rebuilding and the female kill percentage that year was 38pc (calculated from MLA figures).

In 2013 it moved up to 40pc as the dry started to bite and was fully-blown liquidation at 45pc in both 2014 and 2015.

2016 was something of a status-quo sort of year where liquidation had tapered off but active buying-in of replacement females had not really commenced and that saw females at 42pc.

If anything, 42pc may be an indicator that the herd is somewhere between liquidation and rebuilding.

For these reasons the perception of herd rebuilding being underway may be just an illusion.

Moving on to production and export projections, MLA has factored in an expectation that adult carcass weight will rise in 2017 to 291kg.

This stems from the ABS statistic of adult carcass weight edging over 290kg for the October 2016 to January 2017 period.

The mild, wet weather allowed cattle to put on condition over the 2016 winter resulting in heavier-than-normal grassfed cattle in the final quarter. Fewer females in that slaughter period are also explained by the unusual winter conditions as noted above.

A return to more normal winter conditions in 2017 would likely result in a tapering of that production boost with a commensurate downward effect on average carcass weight.

But MLA appears to have relied on the herd rebuilding scenario which they expect will keep female cattle slaughter at a relatively low level for the duration of 2017 thereby exerting an upward influence on average carcass weight.

Accordingly, their prediction for total beef and veal production has been revised to 2.1 million tonnes (cwt) down just 1pc year-on-year rather than 3pc as previously forecast.

For beef exports, that has meant an upward revision of shipped weight for the year from 970,000t to 992,000t, just 3pc less than 2016 compared to the original estimate of 5pc less.

Some indication of how exports are tracking toward that projection can be gauged from latest Department of Agriculture and Water Resources (DAWR) figures.

In April just 47,200t have been shipped in the first three weeks suggesting total for the month will be less than 70,000t.

This puts the four-month progressive total to the end of April at a very substantial 14pc behind same period 2016.

To haul that deficit in to just 3pc in the remaining eight months of the year would seem a tall order particularly if MLA is correct in its assessment that herd rebuilding has commenced and that supply of slaughter females will remain subdued.