As the shadow of an impending drought looms over Australia, farmers are being pushed to desperate measures, with some even offering their sheep for free. This drastic decision emerges from a combination of plummeting livestock prices and adverse weather forecasts.
After enjoying almost three years of generous rainfall, the eastern seaboard of Australia was considered “fully stocked” with farmers benefiting from lamb and goat prices soaring at about $9 per kilo and an Eastern Young Cattle Indicator (EYCI) above 1,100c/kg cwt. However, the onset of the El Niño weather system, historically associated with droughts and bushfires in eastern Australia, has stirred anxiety. The market is now flooded with livestock, causing all meat (beef/sheep/goat) prices to plummet from such highs.
Leonard Vallance, a sheep producer from Victoria's Mallee region, captures the bleak sentiment: “It’s absolutely devastating, that’s all you can say. It’s catastrophic.” The price drop is so significant that transporting livestock to saleyards at $4 per kilo barely covers costs, leading to his sombre conclusion: "you might as well give them away."
The Bureau of Meteorology’s recent climate outlook doesn't bode well, either. Forecasts predict below-median rainfall for a significant part of Australia between November and January, coupled with above-average temperatures.
The market's volatile state is further fuelled by external pressures. A report by Rabobank indicates that a global economic downturn has dampened consumer demand for red meat. While overall meat exports have surged by 30% year on year, driven by heightened demand in the US, anticipated sales in Asia remain unrealised, resulting in meat stockpiles not seen in decades.
Jenny Bradley, a grazier and member of the Sheep Producers Australia policy council, remarked on the sudden change from prosperous years to drier conditions: “It’s the perfect storm in a sense for the eastern states.” She further added that while some farmers might be overreacting by rushing to sell, every decision now is tinged with complexity and difficulty.
While many farmers remember the punishing drought of 2019, Rabobank analyst Edward McGeoch highlighted that present market conditions were primarily steered by producer sentiments. The main dilemma: whether to retain livestock on farms and invest in feeding them, hoping for better market conditions, or to offload them pre-emptively.
In summary, Australia's agribusiness is navigating a correction in all three of the major items that drove the “perfect storm” of last year’s property and livestock markets being favourable - seasonal conditions, low interest rates and strong commodity prices. We all knew that those conditions couldn’t continue, but we didn’t expect it to correct this quickly. Hopefully its rains somewhere soon and the supply of all livestock lines into saleyards and processors can be steadied until the market finds a reasonable level.