The 69 million sheep question

The Detail

Australian Bureau of Statistics (ABS) quarterly sheep slaughter data was released a few weeks ago which allows us to get a picture of how the flock rebuild is coming along, via the sheep turnoff ratio (STR). The STR is a proportional measure of sheep turnoff going into slaughter and the live export trade which is compared to the current flock size. The last time we took a look at the STR was in late August 2021, as we assessed the STR as at the end of the June quarter.

Since June the STR was softened further to hit 8.3% as of September 2021, which is the lowest it has been according to records going back to the early 1990s. On an annual basis the STR now sits at 8.7% for the 2021 season, well below the threshold of 14% that denotes a flock rebuild or liquidation.  Historically, when the STR is under 14% we have seen the flock move into a rebuild phase.

During 2017 there was a brief dip towards 12% and the flock responded by increasing 6.7% that season. However, throughout 2010/12 the STR remained below 14% for a number of years, extending as low as 10.1% and the flock posted three successive years of rebuild.

A scatter plot of the annual average STR compared to the annual change to the sheep flock highlights a reasonably strong correlation coefficient between the two data series. In our article from late August we noted that Meat and Livestock Australia (MLA) were anticipating a 6.3% increase to the flock in 2021 and we suggested that with such a low STR it was likely that the flock rebuild would be stronger.

In their October Sheep Industry projections MLA increased their forecast for the flock rebuild to see a 10.3% gain sheep numbers during 2021 and they now expect the flock hit 70.6 million head. As we outlined in the piece we published in August the annual average STR suggests a rebuild to the flock of nearly 8% was on the cards, and this remains the situation at present.

The current annual average STR of 8.7% would suggest a flock rebuild of around 7.8%, based on the line of best fit on the scatter plot, which would indicate a flock of around 69 million head by the end of the 2021 season.

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