A mountain of livestock and congested supply chains

If you're looking for the perfect example of a perfect storm in Australian agriculture, then look no further than the current high production of sheep, cattle and goats, and the already large volumes of meat in congested supply chains.

It's nothing less than a pain point for producers, and a feeling that isn't likely to ease in the short term, with some analysts believing the number of livestock in the system has been underestimated. 

Speaking in a recently-released podcast, RaboResearch associate analyst Edward McGeoch said 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.

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 goats, 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 goats, they had tracked 16% 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, Mr Gidley-Baird said.

“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,” he said.

“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.

This means processors currently have a 'mountain of livestock coming at them', which is trying to be forced into a very congested supply chain.

Sheepmeat

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.

Mr 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).

“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,” he said.

Mr McGeoch said these numbers signalled the sheep market was not getting the 'traditional break' that would occur between the two lambing seasons which 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,” he said.

Mr McGeoch said 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,” he said.

Cattle

For cattle, Mr Gidley-Baird said while there’s been an increase in year-on-year cattle slaughter numbers for quarter two, they’re not at those record high levels seen in sheepmeat.

“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 said.

But, Mr Gidley-Baird said, 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 said.

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

"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.”

Mr Gidley-Baird said 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, Mr Gidley-Baird said.

“The way I am describing it is that it is a slightly brighter light at the end of a slightly shorter tunnel for the cattle industry compared to the sheep industry at the moment,” he said.