ON Monday this week, MLA released its quarterly industry projections update with a middle-of-the-road prediction for more of the same in the first half of 2017 to what was experienced in 2016.
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Crystal-ball gazing is always a brave undertaking as there are so many pieces to the puzzle that can and do contrive to bring undone the most reasoned of views.
Accordingly, it is always wise to look first at the assumptions underpinning the work before going to the findings.
There we find the words “average seasonal conditions have been assumed for the majority of Australia’s cattle producing regions for the 2017 to 2021 projections”.
The problem with that is that Queensland is a boom or bust sort of place when it comes to seasons and it is that very cycle that drives the herd building and liquidation phases that so heavily influence prices.
At the moment it would seem we are sitting on the cusp of a rebuilding of herd numbers following the unexpected wet and mild winter last year.
However a good general wet is needed to turn the amber light to green otherwise, for those who have not yet had the benefit of storms or channels in flood, it will sadly be back to drought conditions.
One obvious implication of a widespread wet eventuating in the next 2-3 months is the availability of females for slaughter.
Good rain means the cows stay in the paddock to hopefully produce a calf and no rain will mean another round of dipping into the herd to eliminate the non productives.
To put some numbers around that it is useful to look at the combined kill figures for Queensland and New South Wales over the last five years.
In 2012 the female kill across these two states was 1.87million head (from MLA weekly slaughter figures).
By 2014 at the peak of liquidation, that number had jumped to 2.74m.
In 2015 it was still right up there at 2.68m but last year it plummeted to just 2.00m. Some of that 680,000 head drop would be explained by diminution of the herd after three consecutive years of liquidation but I suspect the biggest part was due to retention as a result of the break in season.
That suggests there are a lot of females that would have come forward to slaughter in 2016 had it not been for the rain and that those cows are there to potentially come forward this year in a worst case scenario of a return to drought.
With male cattle kill numbers likely to see little change in 2017 on the much reduced 2016 figure, it will mean the national kill overall will be driven by the availability of female cattle. If it rains that could mean a 5-6pc reduction overall on 2016 levels or an increase of around the same magnitude if it doesn’t rain.
With that in mind it is interesting to see what MLA believes will unfold under its assumption of average seasonal conditions.
Firstly the national herd is expected to undergo a very modest increase of 670,000 head or 2.6pc to 26.8 million in 2017.
Within that scenario there is an expectation that southern Australia will rebuild at a faster rate than the north and could possibly return to pre-drought levels by 2018.
Northern Australia meanwhile is not predicted to return to pre-drought levels until 2021.
In its outlook for slaughterings, MLA predicts the massive fall of 19pc in 2016 will moderate to a much reduced 2.7pc decline in 2017. That will take numbers from 7.3m down to 7.1m.
Gradual increases are then predicted through to 2021 reaching 8m head, about 1m below the liquidation peak of 2014-15.
On the back of their predicted decline in slaughterings MLA is anticipating a similar 2.7pc fall in beef production to 2.038 million tonnes carcass weight with only a very small increase in average carcass weight from 286 to 287kg.
Shipped-weight beef exports are expected to fall from 1.018m tonnes in 2016 to 970,000t this year, a drop of 4.7pc.
For cattle on feed, MLA expects to see a significant drop in numbers in 2017 to a quarterly average of 700-750,000 head. This is expected to equate to a turnoff of around 2.5m head, down by 100,000 head on 2016.
With 2015 and 2016 being record and near-record years for grainfed beef exports, the flow-on effect of lower numbers on feed is expected to limit supply and impact grainfed beef exports to some extent in 2017.
Numbers down at meatworks
COMING back to the present it is obvious after talking to one large multi-site processor earlier this week that the start to the year is proving to be much harder than anyone expected.
There was an expectation that the year might start on reasonable numbers but it is not working out that way.
Slaughter figures provided by MLA show the Queensland kill had reached only 49,863 last week compared to almost 59,000 same time last year.
With last year’s mild wet winter it was felt that cattle would potentially be ready a bit sooner this year but then it rained over Christmas and has been perishingly hot ever since.
He also sensed that it is probably the case that for the first time in a long while many people are under less financial pressure and coupled with having a bit of grass in front of them they are taking some time out while the season makes up it mind as to what it will deliver.
While the shortage in numbers has reflected to some extent prices being paid in the early markets, it has not so far resulted in any change to opening grid rates except for Rockhampton where prices have been brought up to match southern Queensland.
No news at this point as to when Townsville will open.
