Crossroads for cattle herd

Independent analysts have been prominent in the media with their reasoning for a return to liquidation and what that might mean for slaughter volumes and prices in 2018 considering the state of global beef markets.

This is an important addition to the ‘formal’ MLA quarterly industry projections as it widens the thinking on the topic and thereby adds perspective to the assessment of risk in today’s market prices for stock (or their progeny) that will be sold over the next couple of years.

Of course it is very hard to get it right but a basic truism is that the better the data the better the predictions.

On that score the United States is something of a role model for comprehensive and timely herd statistics.

Their report released on 31 January each year relates to the state of play in their herd as at 1 January that same year.

Australia on the other hand has a 12 month time lag in its principal herd statistics.

That is to say we will not find out until July this year what the Australian Bureau of Statistics (ABS) believes was the size of the Australian cattle herd as at 30 June 2017.

Even with something as basic as slaughter statistics, Australian data has a two month time lag.

Burdened with those limitations and the usual caveat of seasonality, MLA predicted in its Industry Projections this time last year that the Australian cattle herd would increase during 2017 for the first time in three years.

The quantum of the increase was 2.5pc taking the herd from its 2016 preliminary estimate of 26.1 million to 26.8 million head.

They also predicted that the increase would not be uniform but rather centred in southern Australia (New South Wales and Victoria in particular) and possibly delayed in Queensland where it might take until 2021 to fully recover.

However in July 2017 when ABS released its figures for 2016, the herd wasn’t 26.1 million as previously thought. The supposedly correct figure was 26.845 million, a difference of 700,000 head.

That presented MLA with an opportunity in its October update to revise its 2017 herd rebuild prediction in light of the ‘corrected’ herd size in 2016.

But instead of sticking to the 2.5pc increase which would have taken predicted herd size to 27.5 million head, MLA moderated its view on the extent of the rebuilding it believed was underway to just 27 million head, an increase of only 155,000 head nationally (just 0.6pc).

Such a low number at best is only tentative indication that a trend may be emerging but that has not stopped the notion gaining credence to virtually universal wisdom status.

As recently as its January Industry Predictions, MLA maintained that “the herd rebuild is still very much underway across many parts of the nation”.

An alternate perspective and one that has been offered in this column throughout 2017 is that the herd has not yet entered a rebuild phase to any significant extent.

Rather, it has remained relatively static with producers in the north possibly losing ground while trying their best to hold breeder numbers while in the south there may have been some gains.

The evidence to support this view is the slaughter information compulsorily acquired by government for levy purposes.

This information is broken down by state and further dissected into males and females.

The latter is valuable particularly in aggregated form but trying to draw conclusions from individual state data is difficult due to cross border movements.

What the gender split tells us is that during 2011 and 2012, the two big years of the last major herd rebuild, females averaged 43pc of the national kill.

Contrast that to the drought years of 2014 and 2015 when wholesale liquidation was underway, the female percentage ranged from 49 to 51. That puts the crossroads between liquidation and rebuild at around 46pc.

The 2017 female percentage of 45.5 is therefore just slightly on the rebuild side of static.

Unfortunately there are no ABS slaughter figures for the first seven weeks of 2018 so it is really a blind call for analysts to suggest a move back toward liquidation.

MLA’s weekly slaughter figures contain a gender split for Queensland and New South Wales but there are significant gaps in that data due to the voluntary nature of its supply.

That said MLA’s progressive female percentage for both states as at week 7 are below same period last year which does not point to liquidation.

The big offloads last week at Roma (12,000 head) and Dalby (7000 head) were overwhelmingly lightweight weaners from western areas.

These young cattle are still in the system and there is nothing yet in the saleyard data to suggest elevated sale to slaughter of breeding stock.

To borrow an expression from ABC’s election analyst Antony Green, as far as herd liquidation is concerned at this stage it is too early to call.

NUMBERS continue to exceed 130,000 per week according to latest MLA eastern-states report. Already 7pc higher than last year, the trend should continue with Townsville coming back on line Tuesday next week. One major multi-site processor reported a reasonable forward supply position at present but the gyrations of the AU$ back up to over US79 cents have caused rates to come off by 10 cents.