A recent query came across the desk relating to monsoon scenarios. A wet, or wetter than average, monsoon will obviously impact the market in different ways to the drier than average monsoon. Here we try and take herd and season into account to offer some pricing scenarios.
With more than half the Australian cattle herd residing in Queensland and
the Northern Territory, it’s fair to say that seasonal influences in the north
can have dramatic impacts on prices nationwide.
Summer rain in the north is a key driver of feed supply, which impacts
buying and selling decisions, along with reproduction and marking rates.
There is plenty that goes into the prices of cattle apart from what is happening
with the weather in the north, but we can find years with better-than-average
wet seasons, and worse-than-average years, and compare how markets moved over
the summer.
The most recent example of a dry monsoon was in 2018-19. There were, however, parts of Queensland that
had a lot of rain that year, but it was almost too much.
The herd in 2018 was similar to what it is now, with the new Australian
Bureau of Statistics (ABS) numbers pegging it at 30.78 million head. The herd is currently expected to be at just
over 30 million head.
Figure 1 shows how Queensland slaughter rates reacted to the drier-than-normal
monsoon season. Cattle slaughter jumped
higher in mid-December, and ramped up all through January, February and March
to peak before the Easter holiday shutdown started to impact the flow of cattle.
The alternative scenario comes in the year before. The 2017-18 wet season was wetter than
average across the Northern Territory, and close to average in Queensland. The herd was at 30.5 million head in 2017 and
grew slightly in 2018. Figure 1 shows
much weaker cattle slaughter in early 2018 for Queensland.
In terms of price, Figure 2 shows that in 2017 the Eastern Young Cattle
Indicator rallied out of a spring slump and maintained stronger levels through
until the autumn. The drier summer of
2018-19 saw prices fall sharply in January 2019 and weaken all the way through
to March.
What does it mean?
With a strong herd (and therefore cattle supply), we would expect a wetter-than-average monsoon season to see steady to stronger cattle prices. There is a limit on restocker demand, with an already large herd, so we won’t see extreme price rises even with a positive wet season.
On the other hand, a drier-than-normal monsoon has the potential to see prices fall sharply, and it usually occurs in January when producers bite the bullet and stop waiting for rain.
Key Points
- Northern wet season rains can impact cattle supply and demand markedly.
- If the wet season fails, we will likely see strong cattle supply as a result of the large herd.
- A wetter-than-average monsoon would likely see steady to slightly stronger prices.
Click on figure to expand
Click on figure to expand
Data sources: MLA, Mecardo
