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Victorian Livestock Processing Restrictions

9 September 2020 |Commodities
Image of lambs

Victorian Livestock Processing Restrictions

9 September 2020 |Commodities

Current restrictions on meat processing facilities

As of midnight on 7 August 2020, Victorian abattoirs with more than 25 staff have not been able to operate with more than 67 per cent of daily peak and daily total workforce capacity[1]. Thas has affected 120 facilities in the state.

  • Daily peak workforce capacity = daily average of the highest number of workers on site at any given time on each day over: July 2020, or any three-month sequential period in the last 12 months.
  • Daily total workforce capacity = daily average of the total number of workers on site at any given time on each day over: July 2020, or any three-month sequential period in the last 12 months.

Under the current Victorian Government Coronavirus (COVID-19) roadmap to reopening released on 7 September 2020, meat processing will remain “heavily restricted” through the first, second and third steps.

  • Third step restrictions will ease on 23 November conditional upon there being Zero new COVID cases for more than 14 days[2].

State of livestock processing in Victoria

Victoria is a significant processor of Australian livestock, particularly for lambs and sheep:

  VIC
  Cattle Slaughter  Lamb Slaughter  Sheep Slaughter Lamb + Sheep
% of Aus 2019 22% 52% 40% 49%

Australia’s livestock industries are generally in a low supply period as good rainfall in 2020 has allowed producers to retain stock after multiple years of drought-induced destocking. This has left Australia’s cattle herd at 24.6 million (lowest since 1992) and Australia’s sheep flock at 63.5 million (lowest in over a century).

This low supply environment is evident in June livestock slaughter which was below average:

  AUS VIC
  Cattle Slaughter Lamb Slaughter Sheep Slaughter Lamb + Sheep Cattle Slaughter Lamb Slaughter Sheep Slaughter Lamb + Sheep
Jun-20 611,920 1,487,083 301,301 1,788,384 123,190 745,379 126,171 871,550
MoM % -5.1% 2.6% -7.5% 0.7% -11.8% 4.9% 34.6% 8.4%
YoY % -13.7% 2.2% -37.4% -7.7% -16.7% -2.6% -33.8% -8.8%
Jun-20 vs Jun 5yr avg -12.0% -13.1% -36.5% -18.2% -2.5% -4.8% -30.2% -9.5%

Cattle and sheep will be least affected by restrictions on Victorian processor workforces due to forecast tight supply for the remainder of 2020 due to depleted herds and flocks and a focus on stock retention for rebuilding numbers:

  • Australian cattle slaughter in September - December 2020 is forecast to be 27 per cent lower year-on-year.
  • Australian sheep slaughter in September - December 2020 is forecast to be 35 per cent lower year-on-year.

Lamb will be severely affected by restrictions on Victorian processor workforces as spring is the peak supply period for lambs and there is an expected increase in lamb supply in 2020 due to favourable seasonal conditions increasing lambing rates and lamb survival.

Australian lamb slaughter in September - December 2020 is forecast to be 4.5 per cent higher year-on-year and 6.6 per cent above the five-year average.

Victorian lamb slaughter in spring

Victorian lamb slaughter is forecast to peak at just over 1 million head in both October and November, in line with seasonal trends and the current season forecast.

  • Slaughter in each of these months is expected to be 46 per cent higher than June slaughter.

If processors opt to calculate workforce capacity based on any three-month period in the last 12 months, it would likely be during the peak supply period of October-December 2019. During this period, average weekly lamb slaughter in Victoria was 199,999.

  • 67 per cent of this slaughter rate equals 133,999 lambs per week
    • This reflects the average weekly slaughter rate in August 2020 of 133,056.

Slaughter rates may creep a bit higher as processors continue to mitigate the effects of the reduced workforce by spreading the reduced workforce over more shifts (including weekends) and/or by utilising available capacity in New South Wales, South Australia or Queensland.

Source: MLA

What does this mean?

Spring will be a painful time for Victorian lamb producers who have experienced the best season in years after multiple years of drought and will now likely receive weaker prices due to reduced buyer competition at saleyards.

The eastern states trade lamb indicator (ESTLI) has already fallen 27 per cent from 936c/kg in early June to 681c/kg on the first of September. Downward pressure on lamb prices is expected to continue to increase as lamb supply increases towards a peak in October and November.

Producers are expected to hold onto lambs in response to low prices, as was seen in August when average weekly lamb yardings declined 9 per cent month-on-month in Victoria, contrary to the national trend of a 14 per cent increase. Retention of lambs would create a backlog of lambs which could be turned off in a hurry once feed supplies deteriorate in summer.

A backlog of Victorian lambs coming onto the market once processor capacities increase would extend the downwards pressure on prices, this time due to increased supply.

 


[1] Agriculture Victoria: https://agriculture.vic.gov.au/farm-management/emergency-management/coronavirus-covid-19/abattoirs-and-meat-processing-facilities

[2] Roadmap to reopening: https://www.vic.gov.au/coronavirus-covid-19-restrictions-roadmaps

Data sourced from MLA

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