What does ABS’s 4m herd size adjustment mean for the beef industry, and why was the change made?

Simon Quilty

Impartial analyst Simon Quilty takes a deep dive into the explanations behind the latest 4 million head adjustment to ABS’s nationwide herd measurement evaluation, and what it means for {industry}. Beef Central first wrote in regards to the change in this article last Friday. “The change within the measurement of the herd is, for some, a mandatory evil. We have to get behind these new figures, help ABS and rebuild market confidence within the information,” Mr Quilty concludes. “The problem is explaining this dramatic change to clients worldwide, who might not perceive that nothing has modified concerning provide from Australia.”

LAST week, the Australian Bureau of Statistics launched a revised herd measurement estimate for Australia, including 4.34 million head to the June 2023 estimate of 29.88m.

So, have 4 million head of cattle appeared magically within the system, and may we anticipate massive volumes of cattle to come back ahead?

Business Considerations: this revision has sparked quite a few considerations amongst {industry} individuals, significantly in mild of the downward pattern in slaughterings over the previous decade and the anticipation of a record-low slaughter yr subsequent yr.

Briefly, these figures contradict our beliefs. Whereas these figures would indicate close to historic highs of the herd measurement, right now’s kill and the final ten years indicate the alternative.

I spoke at size final week with Rob Walter, Director of the Agriculture Statistics Program at ABS, who answered a lot of my questions in regards to the adjustments made with the brand new methodology. This week, I adopted up with the ABS analytical crew on the extra considerations raised on this paper.

This paper explains why ABS has executed this, outlines the brand new methodology in comparison with the outdated, and discusses the pluses and minuses of this new set of numbers and what it probably means going ahead.

Briefly, I’m trying ahead to answering the next questions.

• Why has ABS modified its quantity drastically, and what’s the new methodology?
• What’s the threat to the market of such a dramatic enhance in cattle numbers?
• What are the considerations with this new methodology? Will it lead to extra correct or much less correct figures sooner or later?
• What are the positives of this new methodology?
• Does this system compromise ABS independence?
• What does this imply going ahead?

Why has ABS modified its quantity drastically, and what’s the new methodology?

As a result of authorities’s lack of funding and a perceived low response charge to their final 2022 herd and flock measurement survey, the ABS has developed a brand new methodology that makes use of an array of knowledge sources to estimate herd measurement.

Define of recent methodology versus the outdated

The outdated technique was a snapshot of Australian herd measurement by every state and nationally based mostly on survey responses. The survey was executed yearly, with virtually 25,000 agricultural operations approaching, and each fifth yr on the time of census, this survey pool was elevated to 100,000 agricultural operations.

This separated beef and dairy herds and broke the herd into classes based mostly on calf numbers, cow and heifer over one yr, and the ‘different’ class.

The final survey performed in 2022, had a response charge of near 60pc, or 15,000 agricultural operations. This isn’t the primary time that response charges have been low, and when this has occurred prior to now, the ABS crew has regarded to different information sources to grasp the developments higher.

This was the final survey performed, and now ABS has moved to a multi-data assortment course of based mostly on flows into and out of the herd.

The brand new methodology for estimating cattle herd and sheep flock numbers makes use of fertility information, actions, and slaughter on a regional foundation throughout Australia; included are animal disposals, reside exports, and knowledge on herd/flock demographics and fertility, along with rainfall and pasture situations.

The 2023 cattle herd quantity has been launched as an experimental sequence, and the ABS states that this ‘displays that there will likely be ongoing improvement to additional refine the tactic along with making use of it to the sheep flock’.

It ought to be famous that there isn’t a longer any ‘Estimated Worth of Agricultural Output (EVAO) of $40,000 per property’, as the brand new methodology relies on livestock flows and the definition of all cattle grown for a business function.

The EVAO was the worth per property on their livestock enterprise; if it was above $40,000 per yr, it will be included within the survey. If it was under, it will be excluded. In 2016, the earlier EVAO of $5000 per property was lifted to $40,000.

The next is a listing of the brand new ABS information assortment factors:

• Historic Agricultural Census and Agricultural Commodity Survey information (to determine sub-population relationships which are comparatively secure by means of time by State /Territory)
• ABS Commerce information (for reside cattle exports)
• ABS Slaughter survey on numbers of cattle and intercourse at slaughter. (A portion of those is reallocated again to the state of manufacturing based mostly on livestock motion information)
• ABARES Farm Survey, which supplies us charges for mortality on farm and mating (charges of grownup females joined) and calving charges (charges of calves from joined females
• BOM rainfall information (to determine relationships between adjustments in rainfall and calf numbers to be used in predicting the newest yr.

The next will likely be added sooner or later as extra assortment factors:

• Extra detailed NLIS motion information to assist us perceive gross and web animal transfers between areas and from farms to farms, feedlots, abattoirs or any mixture of those).
• Pasture situation and progress from satellite tv for pc information sources akin to Lengthy Paddock
• Mixture farm software program information on herd demographics.
• Animal weight and pricing info on cattle and feed.

Why is there such a drastic change in cattle herd numbers?

The right measurement of the Australian herd has been debated for a while with what has been described as a ‘contestable house’ and, due to this fact, the necessity to reassess the place the baseline is as a result of, for a lot of, it has been too low for too lengthy and doesn’t mirror the right precise measurement of the herd.

Utilizing the common of the final 5 years of $40,000 EVAO versus the brand new methodology estimates, the outdated baseline herd measurement is 24.5m head, and the brand new baseline is 28.81m.

The ABS stated the rationale for elevating the herd quantity by greater than 4 million head was based mostly on the herd’s inflows and outflows and the truth that the amount of the actions was far larger than what was bodily attainable with the outdated baseline. The brand new baseline makes much more sense in understanding these flows throughout the herd.

What’s necessary to notice is that this doesn’t change any of the share actions of the herd measurement over the past 5 years, so if I utilized my technique of figuring out herd measurement, which I had at 25.5m for 2023, this equates to virtually exactly 29.88m for 2023 utilizing the brand new ABS baseline methodology.

This adjustment has relieved Australia’s meat processing sector, which has made sizeable investments in upgrading and constructing new services over the past 5 years.

This extra vital herd quantity doesn’t have an effect on previous and future slaughterings. Nonetheless, it comforts these within the processing sector, with shareholders and buyers, who will discover that the brand new baseline of 28.8m is extra sustainable to grasp and reside with than the 24.5m baseline. For a lot of processors, this notion is necessary as they proceed to look to take a position.

Backside line – If these developments should not compromised, I can reside with a brand new baseline. Nonetheless, I’m involved in regards to the short-term penalties of final week’s dramatic raise by 4m within the baseline, which I focus on later on this paper.

This adjustment was presumably wanted for the long run, and there’s by no means time to make it. The problem is explaining this dramatic change to clients worldwide, who might not perceive that nothing has modified concerning provide from Australia.

What’s the threat to the market of such a dramatic enhance in cattle numbers?

There are a number of dangers to this new baseline variety of 28.2 million head.

Is there a wall of meat to be shipped?

Firstly, many shoppers worldwide will interpret this as a big quantity of extra meat to come back onto the market, which is unfaithful. Present volumes are wholesome, however these export volumes will fall with an anticipated rebuild subsequent yr.

Abroad patrons will likely be reluctant to purchase in the event that they imagine bigger volumes are anticipated going ahead and can look to maneuver to a ‘hand-to-mouth’ strategy to purchasing. This will likely be difficult to beef exporters within the quick time period.

If the meat isn’t there, then it’s not there, and finally, abroad clients will look to purchase ahead, however it might take a while to persuade them that there isn’t a ‘wall of meat’ to come back.

Worldwide credibility of Australia’s livestock numbers and statistics

Such a dramatic raise of 4 million head within the baseline implies that Australia’s historic statistics have been mistaken for a few years, and it is a appropriate assumption.

So, the credibility of Australia’s livestock quantity estimates has been broken for purchasers worldwide and Australian {industry} individuals who use these ABS figures to make necessary enterprise selections.

How can they belief these figures sooner or later? From an analyst’s perspective, so long as the developments stay the identical, I can reside with these new numbers. Nonetheless, for these making vital funding selections, these new numbers are a bitter tablet to swallow, provided that a necessary, trusted supply akin to ABS has been mistaken of their baseline for an prolonged interval.

It should take a number of years for a lot of key {industry} individuals to belief the brand new methodology and better baseline figures. The developments haven’t modified, however for a lot of, convincing them will take a number of years earlier than the belief is reinstated.

A reassessment of Australia’s GHG discount goal

Final month, CSIRO got here out with its newest evaluation of Australia’s livestock sector’s greenhouse gasoline emissions measurement, claiming a 78 p.c discount since 2005.

This report relies on the CSIRO estimate for beef, sheep and goats of the 2021 Australian Nationwide Greenhouse Gasoline Stock. This discount was extra vital than the earlier yr’s 65pc discount.

So, with a further 4 million head within the system, does this imply that 16pc extra cattle have compromised the discount ranges? I don’t assume it has, however this would appear the apparent message on the floor.

What’s necessary to notice is the brand new revised estimate for 2005 for herd measurement. How does this evaluate?

ABS has despatched me a preliminary herd measurement sequence relationship again to 2005. When evaluating herd sizes, the outdated baseline (24.4m) of 2005 has a 3pc herd discount in comparison with 2021, whereas the brand new methodology has a 5pc discount in herd measurement. So, this new methodology helps Australia get to its GHG goal faster.

The press and the worldwide group will have a look at absolutely the variety of 4 million head and say this must be added to the underside line. That is incorrect; the measurement system was designed to check livestock numbers in 2005 with right now, and provided that this has a brand new baseline, the accounting ought to work in our favour.

Backside line—This extra 4 million cattle is messy and complicated for many individuals worldwide. It undermines Australia’s credibility in international markets concerning livestock information, each by way of export markets, statistical evaluation, and our standing in GHG emission targets.

If a recalibration is required, then so be it, there’s by no means time to do it. There will likely be short-term collateral harm concerning markets and popularity, however these considerations will disappear with time. It’s irritating for many people attempting to elucidate how such an abrupt change to the herd measurement has occurred with our worldwide counterparts.

In actuality, the end result works in our favour (GHG discount) in some respects however is prone to undermine some market confidence within the quick time period. As said, it will return, however it can require a whole lot of clarification and time.

What are the considerations with this new methodology? Will it lead to roughly correct figures sooner or later?

A must anchor the brand new methodology to a five-year census survey

There’s a threat on this new methodology as a result of the brand new figures every year are based mostly on flows out and in of the herd, not on absolute numbers {that a} survey would supply.

So, if a dramatic occasion ought to happen that disrupts cattle numbers, the flows won’t choose this up and, consequently, will see numbers ‘exit of kilter’. So, if the earlier yr of knowledge is wrong, the next years grow to be incorrect, with the diploma of inaccuracy growing every year after the acute occasion.

A wonderful instance of an excessive occasion is the Northern Queensland floods in February 2019, which noticed an estimated half 1,000,000 head of cattle misplaced. This huge loss would impression herd measurement, which will not be picked up in inflows. One other instance is excessive drought situations, which could lead to massive on-farm losses that go unreported.

To keep away from this downside, a survey ought to be performed each 5 years, ideally throughout the census, that means 120,000 agriculture operations could be surveyed. This might anchor each earlier and post-measurements based mostly on flows. To me, a survey each 5 years is vital to make sure the brand new methodology doesn’t ‘drift’ too distant from the precise herd measurement.

There may be precedent to my suggestion. When discussing this want with the ABS, they agreed {that a} benchmarking technique is required. They stated they at present do an analogous course of on human inhabitants statistics, the place related benchmarking happens, offering a tough quantity that helps make sure the in-between years are related and haven’t drifted away from the true inhabitants numbers.

Backside line – Ideally, with any such dramatic change in statistics, you’d have run the outdated methodology towards the brand new methodology over 5 years to make sure that the brand new strategy is correct. Sadly, we do not need that luxurious.

Due to this fact, it’s essential to conduct a survey each 5 years to cross-reference the brand new methodology, be sure that it stays true to the outdated course of, and be sure that figures don’t drift away from the proper livestock numbers—in different phrases, you will need to anchor the statistics to a tough quantity each 5 years.

Does this make the outdated information irrelevant?

Sadly, the brand new baseline will impression earlier cattle herd estimates relationship again to 1965 and earlier. ABS ought to backdate herd measurement figures way back to attainable. This was mentioned this week, and the date backing will doubtless happen to 1990, although that is nonetheless being mentioned.

The reason being that in evaluation, we glance intently at developments, and the flexibility to look again at herd measurement and slaughter ranges and evaluate them with right now is vital in understanding totally different cycles out there. That is significantly related with uncommon anomalies akin to final yr’s eight months of dry situations and enormous cattle gross sales.

This historic information turns into ineffective and irrelevant if we don’t modify earlier cattle herds to match right now’s new baseline.

ABS recognised this and despatched me preliminary information from 2005, with the brand new baseline constructed into the herd measurement. They’ve requested for this to stay confidential till these preliminary revised historic numbers are finalised.

Will this be extra correct sooner or later?

The reply to this query relies on the place you sit out there. Processors would regard these numbers as extra correct. Nonetheless, as analysts, the pattern is vital; to me, these developments keep the identical whether or not they’re the outdated or new baseline.

Producers are involved that, within the quick time period, this increased new baseline will ship the mistaken message to our markets and maintain pricing beneath stress.

So long as we’ve got a survey each 5 years (or an equal technique to benchmark) that anchors the estimates within the in-between years, then it may be correct and, extra importantly, made accessible in a timelier method and, if want be, each quarter.

What are the positives of this new methodology?

There are a number of positives:

• This new methodology is much cheaper to supply.
• It may be executed quarterly if required. One concern prior to now has been the totally different estimates from different organisations, akin to ABARES and USDA, which now use a January 1 estimate with the brand new methodology, an industry-wide accepted quantity at the very least twice a yr or extra if required.
• The brand new methodology is hoped to take away the continued negativity surrounding the precise ABS figures and rebuild some belief in ABS figures.
• The distinction between MLA and ABS figures has been vital; this has not been good for the {industry} each inside and out of doors Australia. This new set of figures allows MLA to fall consistent with ABS.
• It now removes the distinction in EVAOs that has occurred prior to now. This has at all times been some extent of conjecture between totally different companies, and the choice of whether or not to make use of $40,000 or $5000 EVAO after which relate earlier EVAOs to whichever one you select has at all times been unsure. All that uncertainty is now eliminated.

Backside line—I believe if the brand new methodology is completed accurately with a five-year census survey to behave as a vital anchor on the earlier yr’s estimates and that ABS can reserve the suitable to regulate the earlier yr’s figures based mostly on the survey outcomes, then, sure, this new methodology will be equal to the outdated at a much-reduced value.

Does this system compromise ABS independence or affect the change to another information assortment course of?

ABS independence is essential

The ABS assures me that this new methodology doesn’t compromise its independence.

To me, ABS should stay impartial. If {industry} and ABS selected statistics and values collectively, vested pursuits would at all times attempt to affect the ABS numbers to their profit.

ABS has assured me that the info will likely be collected and compiled independently from varied organisations and that the ABS would be the just one doing the evaluation and statistical estimates.

Will another information assortment processes be modified? 

The reply to that is no; particularly, slaughtering and carcase weights will stay the identical. It is a very environment friendly, cost-effective course of that has been in place for a few years and is regarded by many people as sacred floor that ought to by no means be touched.

Backside line: ABS’s independence is essential, as vested pursuits should be saved at arm’s size. Guaranteeing that slaughterings and different key statistics won’t be modified can also be essential.

My solely need is that slaughterings be reintroduced month-to-month, because it as soon as was. Manufacturing figures can stay quarterly, however the significance of real-time correct slaughter numbers could be useful.

Conclusions – What does this imply going ahead?

There is no such thing as a magical further 4 million head of cattle within the herd; it is a ebook entry and an adjustment within the paperwork. Given the numerous investments and expenditures in recent times within the meat processing and lotfeeding sectors, it’s a necessary adjustment for a lot of {industry} individuals.

It’s hoped that the considerations in regards to the herd measurement quantity will be put to mattress transferring ahead and that the yearly livestock numbers for sheep and cattle will be restored to some credibility with this new baselining.

I might be completely satisfied to help the brand new methodology on the proviso {that a} five-year census survey could possibly be reintroduced or an equal ABS technique to benchmark to make sure that previous estimates are correct and that estimates sooner or later have a robust anchor level to find out herd measurement based mostly on flows out and in of the herd.

ABS has famous that there are a number of choices for this benchmarking, together with leveraging present assortment exercise and utilising new information seize applied sciences.

ABS might want to rewrite historical past on each the sheep and the meat herd sizes to make them related, however this isn’t a foul factor given the fixed adjustments to EVAOs which have occurred through the years, which has meant totally different interpretations of what these imply – that is now eliminated with an agreed quantity based mostly on the brand new methodology. What’s vital is that the developments don’t change.

Second-guessing will at all times stay with out this supportive five-year census information or an ABS benchmarking equal.

The brand new methodology and baseline information will allow MLA to align with ABS numbers. I imagine the present livestock quantity discord between each organisations isn’t look inside Australia or internationally.

The ABS’s skill to have herd and flock estimates bi-yearly or quarterly once more ensures that different organisations like USDA and ABARE are working from the identical numbers that MLA is, as soon as once more eradicating any uncertainty and restoring confidence within the new baseline course of.

There will likely be short-term penalties of final week’s dramatic raise by 4 million within the baseline; as said, this adjustment was doubtless wanted for the long run, and there’s by no means time to make it.

I imagine that Australia’s cattle and sheepmeat provide will likely be significantly tight in 2025, 2026, and 2027. Due to this fact, that is pretty much as good a time as any to make this adjustment, as clients will likely be chasing our product, not stepping away for the subsequent few years.

As said, the problem is explaining this dramatic change to clients worldwide, who might not perceive that nothing has modified concerning provide from Australia.

Opposite to well-liked perception, the brand new baselining works in our favour with Australia’s GHG discount goal.

This transformation within the measurement of the herd is, for some, a mandatory evil – we have to get behind these new adjustments, help ABS and rebuild market confidence within the information.

The outcome will likely be higher forecasts and higher selections as we transfer ahead.