The July update of Meat & Livestock Australia’s (MLA) Cattle Industry Projections was released late last week and there were a few tweaks, but the outlook for supply remains extremely tight. This is largely good news for those with cows and not great for the rest of the supply chain.
Current cattle market dynamics are interesting, to say the least. Tight supply of young cattle, weakening demand for high-value beef and a rising Australian dollar mean that Cow/Calf operators are riding high, and everyone else is being squeezed. The latest update on MLA’s Cattle Industry Projections tells us this is likely to continue for at least 18 months.
There were some tweaks in the herd forecast from MLA. The June-19 official herd number came in from the Australian Bureau of Statistics (ABS) at 26.187 million head. This was almost right on the 26.2 forecast from April. So very little change there.
Herd forecasts for the coming years have been stripped back, seemingly due to stronger than expected Cow slaughter for the year to date. Figure 1 shows MLA expect the herd to fall 6.1% in the year to June 30 2020, which has just been, to a new low of 24.6 million head. The new 2020 herd is 0.8% lower than the April forecast.
MLA still expect the rebuild to start from 2020, which will mark the low for the herd. The herd forecast for 2021-2023 came in 1.3-1.8% lower than estimated in April, but growth of 1.8-3% per annum is still expected. There is still plenty of doubt as to whether 2020 will mark the low, and we’ll have to wait until we see female slaughter rates for July to September before can make a call on that.
While May to July cattle slaughter has been much lower than last year, it hasn’t been low enough to hit the April targets. As such MLA added 100,000 head, or 1.4% to 2020 annual slaughter, and interestingly, 1.5% was added to 2021. The low for slaughter (Figure 2) is expected to be in 2021 at 6.9 million head and the improvement in supply in 2022-23 is forecast to be slower.
MLA has trimmed forecasts for cattle slaughter in 2022 and 2023 by 1.3-1.4%, but we are still expected to see growth of 6% and 7% in those years respectively.
What does it mean?
Apart from the disruption and uncertainty created by COVID-19 outbreaks in the short term, we are expecting more of the same in terms of prices for at least the coming 18 months. Tight supply, and high prices of young cattle, will flow through to historically strong prices for feeder and finished cattle. However, margins for backgrounders, feeders and processors will likely be tight relative to historical levels, until we see export markets improve or young cattle supplies recover.
Key Points
- MLA’s Cattle Industry Projections July update sees a new herd low, but still in 2020.
- Cattle slaughter is forecast to be slightly stronger for 2020-21, and still rising strongly in 2022.
- Current dynamics of strong young cattle prices and tight margins down the chain are likely to persist into 2021.
Click on graph to expand
Click on graph to expand
Data sources: MLA, Mecardo
