Market Morsel: Spreads as a signal
Market Morsel
The shift to quarterly slaughter reporting by the Australian Bureau of Statistics (ABS) means that we will have to wait until May before we can see if the herd is in a technical rebuild, with the female slaughter ratio (FSR) below 47%. However, using sale yard spread data on restocker behaviour and the historic comparative price performance of breeding stock we can generate a predictive model of where the FSR currently sits.
The FSR finished the 2020 season at 52.3% on an annual average basis (read more on this here). The plot below shows the annual average FSR compared to the FSR predictive model. Based on the market spread inputs to the model for quarter one of 2021 the predictive model suggests that the Australian herd is now in a rebuild phase, with the FSR model placing it near 42%.
Interestingly, looking at the FSR model to the actual FSR trend it appears that the model is a good lead indicator for where the FSR is heading, as there are times when the model pre-empts the actual figure by 3-6 months. This could suggest that we may not see an FSR as low as 42% during the first quarter of 2021 but perhaps into the second or third quarter.
Nevertheless, an FSR in the low 40% region often results in annual herd increases between 2%-3%, which is consistent with Meat and Livestock Australia’s recent cattle industry projections report, which anticipates the Australian herd to grow by 2% this year to reach 25.2 million head.
