Cows likely to buck old trend, again
19 May 2016
The female percentage* of adult cattle slaughter is akin to a rollercoaster, rising and falling with seasonal conditions and feed availability.
Overlay cow prices, and there is a strong inverse relationship between the two (r= -0.72 from 2001 to 2014), with limited cow availability having a positive effect on prices, and vice versa.
In 2015 the relationship was bucked, as the enormous number of cattle on the market had little impact on prices. In fact, cattle prices across all categories surged to record highs on the back of simultaneous record global beef prices.
For 2016 and 2017, it is inevitable that the female percentage of adult cattle slaughter will trend towards the usual cyclical lows of 42-43%, before eventually increasing again.
So what does this mean for Australian cow prices going forward? If we mark 2015 as an outlier and look back at the long-term inverse relationship between cow slaughter and prices, it would suggest a rise or at least buoyant cow prices are likely for the years ahead.
However, a notable influence this time, and a factor that hasn’t been at play in the past, is that the cow price at the start of the fall in cow slaughter (the base) is at extraordinarily high levels. This implies any further rises would be a stretch – despite the decline in cow availability.
Looking further afield and at the same influential market that elevated Australian cattle prices to record highs in 2015, the US market has softened considerably this year with growing beef production. The imported 90CL (90% Chemical Lean) indicator to the US averaged 558¢/kg CIF in April – down 17% year-on-year.
Five months into 2016 it seems likely cows will buck the long-term trend again – although for different reasons this time.
Despite the strong likelihood of Australian female cattle slaughter drifting to cyclical lows over the coming two years, the usual reverse price pattern (i.e. rise in prices) may not happen. In other words, last year saw uncharacteristic rises, while this year the market may not lift like what would normally happen, as a result of starting from a high base and the softening US market.
*rolling 12 month average
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