Into liquidation
Market Morsel
This week saw the release of the Australian Bureau of Statistics (ABS) quarterly livestock slaughter data, which allows us to measure the female slaughter ratio (FSR) in the national cattle herd. The FSR is a reliable indicator of the cattle cycle status, as in – are we in herd rebuild or herd liquidation phase of the cycle.
At the last update for Q1, 2024 the Australian herd was sitting right on the 47% threshold between liquidation and rebuild. However in Q2, 2024 the FSR has lifted to 53.1% surging strongly into herd liquidation territory for the quarter. Measuring the FSR on an annual average basis now puts the 2024 average FSR at 50.8%. The last time the annual average FSR was at similar annual levels was in 2014 and 2018 at 50.6% and 50.8%, respectively. In 2014 the herd declined by 0.3%.
However, in 2018 the herd was transitioning from a reasonably strong 5.6% rebuild in 2017 to a strong liquidation phase in 2019/20 so the herd was still demonstrating a marginal 0.3% gain over 2018. During the 2019/20 herd liquidation phase the FSR on an annual average basis peaked at 56% which saw the herd reduce by 6.6% in 2019 and drop by 6% in 2020.
We have not seen a significant and extended dry spell since 2019, although WA has come off the back of a nasty few months of limited rain. An assessment of the longer term rainfall cycles suggests that the average gap between wet years and dry years in Australia is about 2 years so the chances of a significant dry period or drought occurring before the end of this decade is pretty high.
It is probably early days to speculate on this too much, but a move to an El Nino into 2025 or 2026 would be all it would take to push the FSR higher and see the herd move into a much stronger liquidation phase like we saw in 2019/20 or during the 2014/15 drought.