Mecardo Low FSR points to rebuild still in progress

The official numbers on Australian cattle slaughter are in for Q1-2022, and the result is that the female slaughter ratio (FSR) has fallen again for the quarter to 42.1%. This indicates that females are still being retained at a historically high level, and the herd rebuild continues to have strong impetus behind it earlier this year.

The latest data update from the Australian Bureau of statistics (ABS) on livestock product production indicates that 608K female cattle were slaughtered in the first quarter of 2022, out of a total kill of 1.45 million head, resulting in a headline FSR ratio of 42.1% for the quarter, down 0.8% from Q4-2021. (figure 1)

Despite a notionally larger herd this year, the total number of female cattle processed this year was down 6% on a prior comparative basis, as in the same quarter of 2021, 643K female cattle met their maker, (figure 2) though total slaughter for Q1-21 was marginally lower at 1.41 million head.

If we break the FSR results down by state for the quarter, the NSW FSR fell another 2.6% to 38.6%, while the ratios in VIC, QLD both increased 1.4% and 1.2% respectively. (figure 1)

Remember, that when looking at the FSR for QLD, although the figure looks remarkably low on the surface, it is more of a reflection of the structure or the industry there, where a high proportion of slaughter is related to feedlot turnoff, which is typically steer dominated, and are often sourced from other states. Similarly, VIC, being a breeding dominated state, with a large dairy component, the FSR looks high in comparison.

Overall, the National FSR calculated for Q1-2022 is well below the 47% threshold considered to be the indicator of a herd rebuild trend in Australia, and continued strong demand for young cattle, coupled with low supply of animals to the processing industry, particularly females, as the breeding herd expands.

A question does hover over whether QLD pastoral conditions will be strong enough in general to support an extended rebuild further into 2022, as the tail end of the monsoon season was a disappointment. This effect is ameliorated by the expectation of a warmer than average winter, which will be positive for pastoral growth, but whether this small benefit will be anywhere near sufficient to offset the setback earlier in the year remains to be seen.

What does it mean?

A low female slaughter ratio below the level of 47% is historically indicative of the presence of the necessary conditions for a continued herd rebuild cycle. If the trend holds in the short to medium term, this is positive for prices, as supply will continue to be constrained. The consistently larger calf crops produced by an expanding breeding herd will eventually need to be turned off however.