Independent livestock analyst Simon Quilty of Global Agri Trends shares his thoughts on the Australian cattle and sheep markets over the spring 2024 quarter.
Last week, figures were released by the Australian Bureau of Statistics (ABS) for Australia’s cattle and sheep industries.
Cattle
The figures highlighted that the cattle herd was increasing its liquidation pace to 53 per cent (pc) across Australia, with all states moving into a liquidation stage.
This highlights the dry conditions in certain parts of Australia and shows that producers moved into both economic liquidation in some states and weather-driven liquidation in others. Higher prices saw many sell their females to ease the stress on bank balances.
The female kill increased by almost 7 to 8 pc over the breakeven ratio across most states, reflecting dry conditions in particular states: Victoria, Tasmania, South Australia, and Western Australia. New South Wales (NSW) rainfall was well above last year and the long-term average, yet heavy liquidation still occurred.
Graph showing female kill ratios by state. Q1 2023 to Q1 2024. Source: ABS
The only exception is Queensland, where female slaughter was up 4 pc over the breakeven ratio.
In NSW and Queensland, the more significant influence was the economic stress farmers have been under and the need to sell females, particularly those that were emptied, to an improved pricing market.
Given the losses and hardships of last year, many producers needed the cash, and for many, this was a strong enough reason. It's no different from what happened in 2020. The rains came in January 2020, but liquidation continued for at least another eight months as farmers sold their empties, taking the cash after three years of feeding animals. This situation repeats itself with rain coming to many parts of Australia in early 2024. Most of Queensland and northern New South Wales saw an ongoing good season, while other states have had far more challenging conditions.
It's important to note that other factors in Queensland may have played a role; some meeting participants said that this year's more oversized live cattle export shipments have seen more males leave on boats, which may have lifted the female ratio.
There has been a carryover of cattle from last year to this year, and some believe older cows were sold to make room for young heifers.
Across every state, carcase weights fell in Q2 due to dry conditions, but the increased female kill also contributed to skewing the results to cows, which are generally lighter than finished steers. Australia’s total carcase weight fell from 315 kg to 305 kg.
In Q2, Australia posted a record number of animals on feed of 1.4 mllion. There is a delayed effect on carcass impact, and the influence of lighter animals from December prior saw a slightly lighter animal going on feed. The third quarter figures should reflect heavier feeder cattle and cheaper grain, and its impact on carcass weights could be more noticeable.
When seeking further industry comments, the record number on feed reflected that profit was to be had across all states earlier in the year due to mainly lower grain prices. These margins today have tightened due to rising feeder cattle prices that have surpassed the rate of increase in finished feeder price, and overseas demand is still subdued.
The net effect of high kills and moderate carcase weights falls in New South Wales and Queensland is larger production levels (not a record), with Queensland dominating Australia’s production and making up almost 50 pc of the total volume at 304,633 MT CWE. The combined volume of the other states is 344,031 MT CWE. If history repeats itself and the two previous production cycles are a guide, Q2 or Q3 will be the peak. I think it is Q2, after which slaughter is expected to fall.
This is a ‘tale of two cities’ or Queensland and the rest of Australia. What is unique about this production peak is that it happened when all states were in liquidation, and southern operators have been travelling to Queensland since May to buy cattle. It points to a very tight potential supply when the rain finally arrives in southern Australia.
When looking at the overall impact of these more significant kills, cattle prices have risen during this period, which indicates improved global demand. It also points to a more robust rebuild period during 2025 and 2026 and strengthens my previous views on higher cattle prices during 2025, 2026 and 2027.
Sheep and lambs
Australia’s sheep flock continues to liquidate at a heavy pace, with both mutton and lamb kills indicating that some growers are looking to exit the industry. When speaking with farmer groups in New South Wales, Victoria and South Australia, many have indicated that some sheepmeat producers are moving into cropping and cattle production. These recent ABS figures seem to reflect this sentiment.
Graph showing the Australian mutton kill 2009 to 2024. Source: ABS.
The breakeven on mutton \kill is 1.94 million head per quarter, above which liquidation occurs and below which rebuild is underway.
The mutton kill comprises ewes with almost no wether retained. Hence, a heavy mutton kill reflects a heavy female sheep kill and liquidation, and a low mutton kill reflects ewe retention and a rebuilding process.
Further sheep liquidation across Australia is expected for most of this year but at a reduced rate, with a strong flock rebuild expected to commence in 2025.
Lamb slaughter reached a Q2 record level of 7.2 million head, and total slaughter is likely to reach 26.2 million in 2024. This unusually high lamb kill is disproportionate to the mutton kill and points to many female lambs being slaughtered, with fewer being retained for rebuilding.
This chart shows Australian mutton kill against flock size 2011 to 2026 forecast. Source: ABS.
Put simply, you cannot kill small stock at this rate without consequences.
With lower lamb and sheep numbers, Australian slaughtering is expected to fall, increasing lamb and mutton prices. There is an inverse relationship between Australian lamb supply and lamb prices; as supply tightens, lamb prices move higher, and in periods of oversupply, the opposite happens.
I expect a flock size of potentially 63.5 million head next year, a significant fall from the 2022 peak of 70.2 million head.
Improved lamb pricing in 2025, 2026, and 2027 is expected. This year's trade lamb average price of 727 ac/kg will likely increase to 860 ac/kg CW next year, and prices will be even higher in 2026.
One of the important highlights of this year's increased lamb and mutton production is the improved global demand, particularly from the Middle East. This has taken the pressure off China and other Asian markets and enabled prices to lift even with large export quantities, and as a result, prices in China have improved.
These charts show lamb and mutton exports to key markets. Source: Global AgriTrends.
In summary, after such a challenging year in 2023, the prospects for Australia’s sheep and lamb sector are improving, with higher prices expected for the next three years.
There is an important caveat to this discussion: the ‘boom/bust cycle’ that is common in the lamb industry. This cycle is driven by oversupply and the lack of labour, which leads to bottlenecks and collapsing prices.
I see 2028 as a potential year when the ‘bust’ could occur, which could see Australian trade lamb prices collapse by 35 to 40 pc.
Much can happen between now and then, but history has a habit of repeating itself. Therefore, lamb producers must potentially look to pivot in 2027 to avoid this volatility if possible. I appreciate this is easier said than done, but it is important to outline this caveat in my forecasts as I have done when talking with Australian lamb producers in recent months.
The information contained in this article is given for the purpose of providing general information only, and while Elders has exercised reasonable care, skill and diligence in its preparation, many factors (including environmental and seasonal) can impact its accuracy and currency. Accordingly, the information should not be relied upon under any circumstances and Elders assumes no liability for any loss consequently suffered. If you would like to speak to someone for tailored advice relating to any of the matters referred to in this article, please contact Elders.
