Close to the edge?
Market Morsel
We keep hearing reports that the US cattle herd is now in a rebuild phase. It popped up again on the “Warwick Long show” yesterday, also known as the ABC Victorian Country Hour. The last time we heard rumours of a US herd rebuild was several months back and that was proven to be a false report. However, after five years of herd liquidation in the USA the prospect of herd rebuild has reared its head again.
In our view the best indicator of the cattle cycle phase in the USA is the female slaughter ratio (FSR), which is simply the percentage of female cattle being sent to slaughter as a proportion of total slaughter volumes. Furthermore, the historic threshold between herd liquidation and rebuild in the US sits at an annual average FSR of around 47.5%.
A look at the US data to the end of June 2024 shows that on a monthly basis the US FSR dipped to 47.4%, a whole 0.1% under the threshold. So does this mean that we are now in rebuild mode in the US herd? Unlikely, I would suggest. The reasons why I think we are not quite at rebuild stage just yet are two-fold.
Firstly, a look at the seasonal trend for the US FSR shows that the average trend each year has the FSR indicator normally dipping to it’s lowest seasonal level during June. This means it is likely that we are presently at the lowest ebb of the seasonal cycle in the US FSR, so it is likely unlikely that we will stay at these low levels as the year progresses.
Secondly, a look at the FSR for 2024 on an annual average basis still has the indicator at 50.4% this year and this is a higher FSR level than what has occurred during the last two herd liquidation phases in the USA. Indeed, during the 2008 to 2014 US herd liquidation phase the US FSR peaked at 49.0% on an annual average basis and during the 1997 to 2004 liquidation phase the US FSR peaked early in the cycle at an annual average of 49.8% in 1997. So an annual average FSR presently in the USA of 50.4% is not representative of a herd that is moving into a rebuild phase right now. That’s not to say we may not be in rebuild in 6-9 months from now though, we just aren’t there yet!
This concept of “not yet in rebuild phase” is further demonstrated by a scatter plot of US herd change annually versus the annual average FSR. Since the last update on the US FSR we have seen the annual average measure drop from 51.6% as at the end of March 2024 to 50.4% as at the end of June 2024. So we are moving back towards a rebuild phase but we aren’t over the threshold into strong breeding stock retention and the US herd going up this year.
The scatter plot relationship suggests with an annual average FSR of 50.4% in 2024 would indicate a decrease to the US herd of around 1.8% this year. This can still change though, as we haven’t yet finished the 2024 season. We will continue to assess this situation as new data presents itself and will report as soon as we think we are formally in a US herd rebuild.