Cattle numbers forecast to drop as processors' hip pockets hurt

Unusually large numbers were yarded in selling complexes across the state in the first month of winter, driven by improved seasonal conditions and a shortage of cattle in NSW and Queensland.

TB White & Sons Ballarat director Leo White said farmers were capitalising on the strong prices instead of carrying cattle through winter for a similar spring return.

"Over the last few markets in Ballarat, we've sold at least 25 per cent of the calves that we would normally hold over and sell in spring," he said.

"We're at record levels at the moment and there's only one way to go ... they will come off the boil."

While northern Australia is desperately searching for cattle to restock, parts of southern Victoria have received that much rain, producers are selling cattle three months in advance due to the wet conditions.

Victorian producers selling spring-drop calves are receiving upwards of 450 cents a kilogram, boosted by unprecedented demand and drought-breaking rainfall.

Alex Scott & Staff Pakenham livestock manager David Setches said he had three runs of cattle to sell at the Victorian Livestock Exchange on Thursday which had been brought forward due to boggy paddocks.

"I can't see store numbers being normal come August/September/October because we've sold a bulk of the cattle and feedlots have absorbed a lot," Mr Setches said.

"People have been selling cattle at 250kg for 480-500c/kg and making the same money they would have, rather than holding them through winter. It also gives cows a chance over winter rather than lactating."

Agents at saleyards including Mortlake and Yea have also reported rises in spring-drop calves entering the market system compared to previous years.

Elders' agricultural market analysis arm, Thomas Elder Markets, which launched this week, said reduced numbers would make it challenging for processors.

"It paints a picture of tight supply continuing through the whole season even when you would normally get a bit of relief in spring and early summer with increased numbers," TEM market analyst Matt Dalgleish said.

A processor margin model by TEM indicates processors are losing $137 a head based on a calculation which considers the entire cost of the animal, including the revenue of the animal's meat, hide and co-product.

On average, processors have lost $63 a head since 1 January compared to a profit average of $147 in 2019.

"Effectively, it's an assessment on what they're getting per animal and what it's costing them in terms of processing and labour costs," Mr Dalgleish said.

"At the moment, processing is not profitable at all."

Mr Dalgleish said it was not uncommon for processor margins to narrow in winter due to the tighter supply in the cooler months.

"When it goes beyond $100-a-head loss that's getting into extreme territory," he said.

"If a lot of these lighter cattle are getting sent in now, that's going to lead to less availability particularly for medium-to-heavy cattle in summer."

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