Things have been largely going along as expected in terms of cattle supplies, and it means Meat & Livestock Australia (MLA) have made few changes in their October projections update. The cattle herd is expected to have bottomed this year, while tighter cattle supplies are yet to come.
With very low slaughter rates since the first quarter of the year, cattle supplies are on track to meet the 7 million head MLA forecast. As such, MLA haven’t changed much in terms of slaughter and herd estimates in October. Even going out three years, there was little change.
Looking at cattle slaughter, despite the weak slaughter rates in 2020, MLA’s is forecasting further lows next year. Figure 1 shows slaughter and live exports for the last 20 years, and MLA’s forecast for the coming three years. It is interesting to note the continued strong live export rates this year, despite the 30 year low in slaughter rates.
MLA are forecasting exports of 1.1 million head for 2020. Live exports are expected to be down 6.5% this year, and a massive 18% in 2021. Cattle slaughter in 2021 is only forecast to be 1.4% lower, with most of the work done in 2020.
Combining slaughter and live export tell us how many cattle have exited the herd for the year. The large fall in slaughter in 2020 sees total cattle removed at 7.8 million head. Figure 1 shows that in 2018 and 2019 slaughter itself was higher than the total cattle offtake projected for 2021.
The much smaller herd, and herd rebuild, means cattle offtake cannot increase too quickly, and in figure 1 we can see offtake is expected to recover to 8.8 million head by 2023.
Dividing total cattle offtake by the size of the herd gives an indication of the direction of the herd. Figure 2 shows that cattle offtake as a proportion of the herd isn’t going to fall as low as it did in 2011, 2012 and 2017. This year offtake is on track to hit 33% of the herd, falling further to 31% in 2021.
The fact the herd is becoming so small means that 30 year lows in slaughter and live export still see offtake as a proportion of the herd at levels which are historically around average.
What does it mean?
Figure 3 shows that while we have historically seen herd growth when offtake has been above 31%, it has generally only been small increases in the herd. Additionally, there have been plenty of years when the herd has shrunk with offtake between 30 and 32% of the herd.
Much depends on the season and marking rates, but it looks like supply could be even weaker than the extreme lows forecast by MLA. This obviously supports prices in the short and medium term. Maybe not at current records, but at historically strong levels.
Key Points
- MLA’s October cattle projections update shows little change on July forecasts.
- Cattle offtake is expected to hit a new low in 2021, but is still high as a proportion of the herd.
- Cattle supply could be even tighter than forecast, with much depending on marking rates.
Click on figure to expand
Click on figure to expand
Click on figure to expand
Data sources: MLA, Mecardo.
