Livestock prices to be impacted by very high production numbers

With a mountain of supply flooding the market coupled with drier conditions Rabobank suggests some farmers will be counting numbers in their sleep

The impact of sheep flooding the market following two good seasons are at near-record volumes with drier seasonal conditions adding to the rush

Local sheep, cattle and goat markets are being impacted by very high production numbers, compounded by already large volumes of meat in congested supply chains, according to agricultural analysts at Rabobank. 

For the sheep sector particularly, there is effectively a “mountain of supply at the moment” following two “extremely good seasons” where plentiful rainfall and strong prices had seen a large rebuild of the national flock, RaboResearch associate analyst Edward McGeoch outlined.

And this supply is now flooding the market, with near-record volumes of lamb and sheep being ‘turned off’ for slaughter as drier seasonal conditions impact parts of the country.

It’s a similar story with goat, where historically high numbers are also hitting the market.

And while cattle slaughter numbers have not reached the same near-record highs as sheep and goat, they had tracked 16 per cent up year-on-year for quarter two, RaboResearch senior animal proteins analyst Angus Gidley-Baird said in the podcast  ‘Counting the numbers in the livestock market’ .

At the same time, Rabobank said, there are already high inventories of meat in the system, which still need to be cleared from the supply chain.

Two key factors

Two key factors are impacting the livestock markets at the moment, Angus Gidley-Baird oiutlined, “The first is the numbers of livestock that are out there – in particular we think the number of sheep has been underestimated – and what that means in terms of the volumes that we’ve got coming into the market.

“And the second is the volumes of stock already in the system. A lot of markets – particularly Asian markets – had bought up big through the end of last year and early this year, in the expectation of coming out of Covid and the recovery of food services and increased consumer expenditure. But a lot of those stocks have not been moved.

“The consumption recovery hasn’t eventuated due to poor economic growth, cost-of-living pressures leading to subdued consumer demand and lower-than-expected export growth.

“So, processors at the moment have got this mountain of livestock coming at them, which is trying to be forced into a very congested supply chain,” Angus Gidley-Baird concluded.

RaboResearch associate analyst Edward McGeoch explains the tightening market that could affect ongoing sheepmeat prices

Sheepmeat in a squeeze

Rabobank says Australia is estimated to have its largest sheep inventory in almost 20 years in 2023, with expectations of record lamb slaughter this year and higher slaughter weights, while mutton slaughter numbers are also up 68% for the first half of the year.

RaboResearch associate analyst Edward McGeoch said quarter one 2023 sheep slaughter numbers were up 54% on the previous year, while quarter two numbers were up 85% year on year (75% above the five-year average).

“So, it’s a huge number – the highest quarter two slaughter number we’ve seen in over 20 years, when quarter two is traditionally the time of the year when Australia on average has its lowest sheep slaughter numbers.

Edward McGeoch explained how these numbers signalled the sheep market was not getting the “traditional break” that would occur between the two lambing seasons that allows the market to “reset and run itself out of a bit of supply”.

“We’re going from last year’s lambs at very high numbers into new season lambs at high numbers and the market is not getting any respite,” Edward McGeoch added.

And the high sheep numbers going to market in recent months had been exacerbated by the poorer seasonal conditions being seen in parts of the country – particularly in central to northern New South Wales.

“That said, these numbers of sheep are still not as high as what we saw hitting the market back in late 2018 and early 2019 when dry conditions were very severe,” Edward McGeoch concluded.

RaboResearch senior animal protein analyst Angus Gidley-Baird explains how high stock volumes could affect the overall cattle market

Cattle not as tight

RaboResearch senior animal proteins analyst Angus Gidley-Baird looked closely at cattle, and explained, “While there’s been an increase in year-on-year cattle slaughter numbers for quarter two, they’re not at those record high levels we’ve seen in sheep meat.

“Although it’s still a way off where we were in 2018 and 2019, we have had the highest female Q2 slaughter numbers since 2020 (up 26% year on year), which indicates that maybe we’ve moved through the whole herd-rebuild phase and producers are starting to make decisions about how many cattle they want on the ground at the moment,” he added.

But, Angus Gidley-Baird explained further, rather than cattle-herd numbers, it was high volumes of stock already in the system and lack of “capacity” among processors that was having the biggest influence on the beef market.

He said global protein inventory levels are very high at the moment.

“In Japan – one of our largest markets – ‘beef in storage’ figures are 18% higher than the five-year average, albeit starting to level out,” he added.

“Congestion in the supply chain, with large amounts of stock already in inventory, is one of the main things holding up the system now for the beef market.

“So, if we start to see volumes move through the system a lot quicker, it will give processors a degree of relief that there is a home for their beef to go to and they’ll start adding extra shifts to increase capacity.”

Angus Gidley-Baird added how factors such as the lead up to Chinese Lunar New Year in early 2024, as well as a contraction in US beef production and exports, give promise beef supplies may soon begin to move more quickly through the global supply chain.

For sheep, global demand will likely take longer to recover. Though longer term, when global market demand returns, Australia will be well placed to service export demand for lamb and sheepmeat, Angus Gidley-Baird added.

“The way I am describing it is that it is a slighter brighter light at the end of a slightly shorter tunnel for the cattle industry compared to the sheep industry at the moment,” Angus Gidley-Baird concluded.