Reports from US beef cattle regions suggest that over much of their cattle country, drought conditions continue to intensify.
Analysis of the seasonal female slaughter ratio for the US, which compares the level of female cattle turnoff as a percentage of overall turnoff, shows that compared to 2017 the current season has seen an increase in the proportion of female cattle culled (Figure 3).
The slaughter ratio for June has lifted above the ten-year average pattern for the first time this season. On an average annual basis, the US female slaughter ratio currently sits at 46.6pc.
Historic annual changes in the US herd shows that a threshold of around 47pc female slaughter is the tipping point to indicate whether the cycle is in a rebuild or destocking phase.
A continuation of the dry conditions impacting the US into the second half of the year will encourage a higher proportion of breeding stock to be turned off.
Cattle prices often come under pressure in the early stages of a herd liquidation, so any move in the US to a herd destocking phase will likely flow through to pressure on global cattle prices and act as another headwind facing Australian markets.
A slowing of US herd growth, or even a liquidation, means supply will have further constraints down the line.
Finished cattle prices might find upside limited as stronger US supplies impact prices. Grass-fed beef is fast becoming the premium product, even more so when there is no grass, so it might still have a little way to go yet, but grainfed beef upside looks limited.
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