Slaughter cattle shortage bites harder

Slaughter cattle shortage bites harder


Sharp declines in numbers processed again this week.


THE LACK of finished cattle supply is putting the brakes on business at processing plants in a significant way, with some very sharp declines in last week's eastern states slaughter on top of weeks of ongoing reductions.

The total of just 111,138 head processed for the week ending March 13 was a 5 per cent drop on the previous week and is 26pc below year-ago levels.

All states reported year-on-year declines, with Queensland females now tracking at close to 50 per cent the volume of this time last year.

Finished cattle prices have remained strong reflecting the shortage, although analysts point out the disconnect between the price of young and finished cattle is now very clear.

The eastern states heavy steer indicator has been close to 100c above year-ago levels this month.

Following record high female slaughter last year as drought forced producers to cut into their breeding herds, the move towards a herd rebuild on the back of rain has come at a somewhat faster rate than what was expected.

Mecardo's Matt Dalgleish, in a webinar on reading the restocker market, said the female slaughter as a percentage of total cattle slaughter averaged 56pc last year - the highest ever seen.

He explained 47pc is the level at which the herd is effectively moving sideways - not growing or declining - and 43pc is considered a decent level for rebuild.

In 2014-15, when Australian producers were heavily destocking due to drought, the female slaughter ratio bordered on 50pc - which goes to show just how incredibly high 2019 turnoff was.

Mr Dalgleish said processors had been reluctant to chase the current rocketing young cattle market.

"We suspect they have well-founded concerns around how the season will play out for them in terms of how low supply will be," he said.

Those concerns existed prior to coronavirus.

"We know our abattoirs have the highest processing costs in the world and the virus is another overlay in what will be a tight season," Mr Dalgleish said.

Mecardo's beef processor profit model is showing average margins will be in negative territory this season.

In 2016-17, as rebuilding got underway, it was negative to the tune of $35 a head and there were extended closures of plants during that time.

Mr Dalgleish said it was likely processors would take a similar approach, remaining very careful about what they were spending and closely watching global markets.

"In 16-17, there were times that negative margin blew out to $120 a head - and processors pulled back at saleyards significantly then. I suspect we'll see similar scenarios this year," he said.

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