Still testing the waters of liquidation
Market Morsel
The cattle processing figures released from the Australian Bureau of Statistics (ABS) today show that the Australian herd remains in liquidation territory, but the female slaughter ratio (FSR) has dipped back a little over Q3 towards the pivot between liquidation and rebuild, which sits at 47%.
Q3 saw the FSR drop from 53.4% in Q2 to 52.2% during Q3, 2024 and this brings the annual FSR for 2024 to 51.5%. As it stands presently we are nowhere near the 56% FSR that saw strong liquidation of the herd in 2019 & 2020. Going forward the trend in the FSR hinges very much on what we get in terms of Bureau of Meteorology (BOM) forecast rainfall for the 2025 autumn break. An average to wetter forecast will see the ratio slide further towards the pivot point at 47%, but a move towards an El Nino weather pattern and the prospect of a drier period could encourage a stronger liquidation phase.
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.