Are we keeping enough cows?

Mecardo market analyst Angus Brown says one thing is certain in today’s cattle market: the Australian herd is still shrinking, and females are still being turned off at historically high numbers.

In April, the cattle slaughter fell by 10 per cent, hinting that the most sustained turnoff of cattle in Australian history had finally exhausted itself.

Australia’s cattle slaughter is still well above historical averages, and the 12-month moving average was still climbing in recent weeks.

But Mr Brown doesn’t think the data says that.

There is always a slaughter downturn in April of about 9 per cent because of the disruptive effects of Easter and Anzac Day, Mr Brown observed.

This year, despite the fall in April numbers, the female slaughter was still 7 per cent higher than the same time in 2014 - which was higher than in 2013.

Females represented 53 per cent of the kill in April, which means they are still being liquidated from the herd faster than they are being replaced.

Three years of historically high female cattle slaughter has ramped up in 2015, not abated as many expect. Australian producers are still killing more females than they are replacing.

In Armidale, NSW, agent Victor Moar of Armitage and Buckley thinks a combination of push and pull factors are inflating yardings in the New England.

At this time of the year, Mr Moar said he can often struggle to get a few hundred head in the weekly sales, because producers have already consolidated for winter. This year, yardings are pushing towards four figures.

That’s part due to the poor condition that a lot of the region finds itself in, Mr Moar said, after a very late break in the season and not enough rain subsequently to provide pasture bulk or runoff water for dams.

But the best cattle prices that Mr Moar has seen are also helping producers make up their minds about selling.

Usually, the promise of a strong kick in the market in spring would encourage producers to hold onto stock through difficult times.

This year, Mr Moar thinks that many are looking at their prospects over the coming months, particularly with a strong El Nino building up, and have opted to cash in stock for certain money rather than gamble on more later.

At some point, Mr Moar expects the market to move higher. Pregnant cows are already fetching $1200-$1300. Current slaughter rates mean there will be a lot less females when positive conditions return, and market forces will likely set new upper limits on a cow’s value.

Angus Brown thinks the female slaughter will fall below last year's levels for the first time in the second half of 2015, as supply finally starts to run down.

If there is strong early break to the northern Wet season, that contraction to supply might be sudden and pronounced.

Mr Brown also guesses that the “phantom herd” - the cattle that aren’t accounted for in any industry census, but which appear in sales when conditions sour or prices rise - must be close to being eliminated.

As the industry edges towards a rebuilding phase, prospects are grim for some individuals but positive for the industry in general.

For individual producers, the necessity to turn off cattle in drought, and the likelihood that they will only be able to restock on inflated prices, could be disastrous.

But for the industry as a whole, Mr Brown notes that the long-running liquidation means a longer recovery period for the herd, and sustained high prices.

“We will be seeing only the best breeding stock remaining when the drought breaks, which should have positive impacts on productivity and profitability if and when some normal seasonal patterns return," he said.

“The large slaughter levels have also seen opening up of a range of export markets, which will be of benefit in terms of demand when supply tightens, and also if we see more competition in our major markets.”

Read more: Angus Brown, Mecardo: “We’re still killing the cows and delaying the rebuild”