Rabobank agricultural analysts are reporting Australia's sheep, cattle and goat markets are being impacted by very high production numbers, compounded by already large volumes of meat in congested supply chains.

RaboResearch associate analyst, Edward McGeoch, said in a podcast recently there is effectively a "mountain of supply at the moment", particularly for the sheep sector, following two "extremely good seasons" where plentiful rainfall and strong prices saw a large rebuild of the national flock.

He said this supply is 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 and it is a similar story with goats.

RaboResearch senior animal proteins analyst, Angus Gidley-Baird, said in the podcast 'Counting the numbers in the livestock market' 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 the second quarter of the year.

 

FACTORS IMPACTING RED MEAT MARKETS

Gidley-Baird said the two key factors currently impacting the markets were livestock numbers and the high volumes of stock already in the system, adding the number of sheep may have been underestimated.  

"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," he said.

"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."

LARGEST SHEEP INVENTORY IN TWO DECADES

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

McGeoch said sheep slaughter numbers were up 54 per cent for the first quarter of 2023, compared to the same quarter the previous year, while numbers were up 85 per cent year on year (75 per cent above the five-year average) in the second quarter.

On average Australia has its lowest sheep slaughter number in the second quarter, so McGeoch said these high numbers signalled the sheep market was not getting the "traditional break" that would normally occur between the two lambing seasons, which allows the market to "reset and run itself out of a bit of supply".

"So 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.

He added high sheep numbers going to market in recent months had been exacerbated by the poorer seasonal conditions 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 INDUSTRY SLIGHTLY BETTER OFF

While there has been an increase in year-on-year cattle slaughter numbers for the second quarter of the year, Gidley-Baird said they weren't at the record high levels seen in sheep meat.

"Although it's still a way off where we were in 2018 and 2019, we have had the highest female quarter two slaughter numbers since 2020 (up 26 per cent 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.

Rather than cattle-herd numbers, Gidley-Baird said 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, with global protein inventory levels very high.

"In Japan, one of our largest markets, ‘beef in storage' figures are 18 per cent 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.

"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."

Beef supplies may soon begin to move more quickly through the global supply chain due to factors like the lead up to Chinese Lunar New Year in early 2024 and a contraction in US beef production and exports.

For sheep global demand will likely take longer to recover, but in the longer term, when the global market demand does return, Gidley-Baird said Australia will be well placed to service export demand for lamb and sheepmeat.

"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," he said.