Once, twice, three times a liquidation

Livestock | 9th August 2021 | By Matt Dalgleish

The Snapshot

  • Approximately 25% of the US beef cow herd is located in western states currently facing extreme drought conditions.
  • The average FSR for 2021 (January to July) is sitting at 49.6% in the USA, which is the highest annual average FSR since 1997.
  • The current annual average FSR of 49.6% for the 2021 season is consistent with the US herd staging a decline of around 1.7% this year.

The Detail

The western half of the USA is currently suffering under some extreme drought conditions this year leading to continued pressure on their cattle herd inventory over the season. Estimates of the beef cow herd distribution suggest that around 25% of the breeding herd within the USA are located in the regions facing the hot and dry conditions.

It is not uncommon during La Nina years that the US suffer under drought as unusually cooler than normal ocean waters off the west coast of the USA strengthen the impact of a climatic pattern called the “Walker Circulation” which pushes warmer ocean water and atmospheric moisture towards Australia, often leading to a lack of rain in the USA and elevated rainfall across the Australian east coast.

A key measure of the liquidation or rebuild status of the cattle herd used by Thomas Elder Markets is the female slaughter ratio (FSR), which calculates the proportion of female cattle slaughtered as a percentage of total slaughter.

When the FSR ratio dips below 47%, as it did earlier this season in Australia, it signifies that the herd has begun a rebuild phase.  Interestingly, analysis of the thresh hold between herd liquidation and rebuild within the USA mirrors the Australian experience with a tipping point between liquidation and rebuild in the USA also at around 47%. Indeed, analysis of the annual herd change in the USA compared to the annual average FSR from 1986 shows a moderately strong correlation between the two series with a correlation coefficient of 0.6008 and annual FSR levels above 47% often coinciding with US herd decline.

The seasonality chart for the FSR in the USA shows that the 2021 pattern is running above the normal range and well above the average seasonal trend. The average FSR for 2021 (January to July) is sitting at 49.6% in the USA, which is the highest annual average FSR since 1997. In 1997 the FSR in the USA averaged 49.8% and this lead to a decline in the US herd that year of 1.8%.

Based on the historic relationship between the annual average FSR and the US cattle herd annual change the current annual average FSR of 49.6% for the 2021 season is consistent with the US herd staging a decline of around 1.7% this year.

The United States Department of Agriculture (USDA) mid-year estimate for their total cattle herd shows that the liquidation remains well underway with their total cattle herd is down by 1% and their beef cow herd is expected to decline by 2% over the 2021 season.

Tags

  • USA
  • Cattle
  • Beef
  • Supply and Demand
  • FSR