Slaughter levels to impact pricing By Angus Brown | Source: MLA,...

Slaughter levels to impact pricing

By Angus Brown | Source: MLA, ABS, Steiner, ACA

Key points

• MLA have increased their forecast for cattle slaughter from 2017-2019.
• Increased supply is likely to dampen prices in the second half of 2017 and in the coming years.
• Base prices will still be set by export values, but higher supply locally will see lower relative values.

Meat and Livestock Australia (MLA) rarely weigh in on price forecasts, preferring to leave the dark arts of crystal ball gazing to the likes of Mecardo. Last week MLA did, however, strongly suggest that cattle prices were going to continue to wane, and it’s hard to argue if you consider their supply forecasts.
Official slaughter data for the year to date shows cattle slaughter has been down around 9% on last year. Despite this, MLA came out last week in their official projections, and forecast this year’s cattle slaughter to finish the year down just 0.5% on last year.
Compared to the April projections, MLA have lifted expected slaughter for this year by 2% to 7.25 million head. Figure 1 shows that MLA not only increased 2017 slaughter projections, but also lifted their 2018 and 2019 slaughter numbers by 2.7 and 2.6% respectively.
The 2020 and 2021 slaughter projections were left unchanged at 8 million head, which is right on the five year average level.
A couple of weeks ago we looked at short term cattle supply implications of slaughter reaching the previous forecast level of 7.1 million head. The conclusion was that if cattle slaughter was to reach this level, significant supply and price pressure would materialise.
If we plug in the new projection for 2017, of 7.25 million head, figure 2 shows that there will be a lot more cattle killed in almost every month from now on. For the second half of the year we’ll have to 3.8 million head slaughtered, a 9% increase on last year, but still well below the five year average.
Obviously the five year average is buoyed by the very high slaughter years of 2013-2015, and 3.8 million head is close to the average of the five years previous to 2013.
There is little doubt that if cattle slaughter is as strong as projected, that prices will be lower over the second half of this year, and we are seeing this already in easing prices, at a time when they normally rise.