The Meat and Livestock Australia (MLA) Cattle Projections released last week have confirmed the theory that we are seeing peak cattle herd now, and supply will remain strong for the medium term. Here we look at what this means for pricing under current, and expected global fundamentals.
It’s been
talked about a bit, but the big shift in cow and heifer slaughter in the June
quarter this year has set the herd liquidation in motion. As reported last week MLA are now expecting that
the 2024 herd number will be a small decline on 2023.
The
forecast for 2026 is for a herd of 6.3%, or a 1.4 million head decline from the
peak 2023 number. Forecasting out three
years is almost never accurate, as seasonal conditions can alter turnoff and
the calf crop.
In terms of
slaughter, we are yet to see the peak, according to MLA. Figure 2 shows MLA expect 2025 to see cattle
slaughter at 8.38 million head. This is
just below the peak hit in 2019. This is
due to the herd liquidation proceeding at a slower rate than the forced selling
in 2019.
The
estimated calf crop peak was in 2023 according to MLA numbers. We estimate the calf crop by taking the herd
number, deducting last year’s herd, and adding slaughter and live export. With the heavy female slaughter thus far this
year, the calf crop is expected to decline by 3.2%.
With
slaughter expected to peak next year, what does this mean for price? Figure 3 shows what used to be a reliable
measure of price, and perhaps it still is with some adjustment. Figure 3 shows the Eastern Young Cattle
Indicator (EYCI) relative to the 90CL beef export price.
When cattle
supply and slaughter capacity are in balance, or cattle supply is tight, the
EYCI sits on the green line. When supply
outstripped slaughter capacity, and/or restocker demand is weak, the EYCI
discount moves the red line.
The EYCI
has sat at a heavy discount in 2024 thus far.
On figure 3 we’ve put 2025 where you might expect it if demand picks
up. But there is a good chance supply
will remain too strong for slaughter capacity, and the discount will sit in the
minus 200¢ zone.
What does it mean?
While cattle prices are improving the potential upside could be limited by supply which has built over the last couple of years. The conundrum is for cattle supply to weaken in the medium term, there needs to be a period of very heavy slaughter, which brings with it lower prices. The alternative is a shift to rebuilding, which brings stronger supply later. The best case scenario for prices, in the medium term, is increases in slaughter capacity so more cattle can be slaughtered to take advantage of strong export prices.
Key Points
- MLA projections are forecasting another year of strong slaughter rates.
- The calf crop is expected to have peaked in 2023.
- Strong supply will likely keep a lid on price rises.
Click on figure to expand
Click on figure to expand
Click on figure to expand
Data sources: MLA, ABS, Mecardo
