Processor capacity scaled back for six weeks from today

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While sheep slaughter moved to the highest level since April, at 66,000 head, it was reported 30% below year-ago levels.

Processor workforce capacity in Victoria will be scaled back for six weeks from Friday, as new restrictions are introduced in the state as part of stage 4 lockdown requirements.

The changes will create logistical pressures across the supply chain, in particular for sheepmeat, given Victoria is the largest lamb processing state.

It is not anticipated that restrictions will create a shortage of product for domestic consumers, with ‘panic buying’ the main contributor to the sparse product on retail shelves in recent days.

The restrictions will see processing plants in Victoria required to cut workforce capacity.

To adhere to the changes, processors may look to increase the number of processing days or extend working hours, as many plants are not operating at full capacity due to limited livestock availability on the back of two years of elevated drought-driven turn-off.

Another factor limiting turn-off in Victoria is that sheep and lamb slaughter are seasonally lower during the winter months and processors typically take the opportunity to run maintenance during this period.

In fact, before the announcement, Victorian cattle, sheep and lamb turnoff for the week ending 31 July were back 40%, 68% and 46%, respectively, compared to the highest weekly throughput over the last five years.

Eastern states lamb slaughter was reported at 285,700 head for the week ending 31 July, up 15% on the same week last year.

This was driven by New South Wales, which lifted 25% on year-ago levels to 114,000 head, as early new season lambs started to enter the market. Demand for lighter lambs is exceeding heavier categories currently, as export processors look to avoid being left with surplus product.

While sheep slaughter moved to the highest level since April, at 66,000 head, it was reported 30% below year-ago levels.

Declines across both New South Wales and Victoria as producers look to rebuild flock numbers reflect the limited availability of sheep, back 36% and 31%, respectively, compared to year-ago levels.

The improvement in conditions across the east coast earlier this year unsurprisingly renewed producer confidence, prompting a greater proportion of livestock to be retained on-farm for breeding purposes. Two consecutive years of heightened livestock turn-off has also contributed to lower throughput in 2020. Hence, processing capacity across all states is running below peak levels.

Despite the logistical challenges faced with interstate travel, opportunities exist for neighbouring states to support production levels and utilise surplus capacity. This is the case in Queensland, with ample capacity available to process cattle and processing plants in New South Wales and South Australia able to ramp up production levels for sheep and lambs if required.

Australia’s largest processing operators have a presence in multiple states and the movement of livestock interstate is common.

The domestic market for Australian red meat remains its largest single market. However, export markets combined account for approximately 70% of total beef production and 75% of total sheepmeat production.

The impact of COVID-19 has resulted in wide-scale shutdowns or restrictions in foodservice outlets in domestic and overseas markets, and the typical balance of demand for Australian product has shifted significantly, with processors increasingly working to redirect product to alternate channels.

The domestic market has been a beneficiary of this shift, with a broader range of high-end products becoming available in butcher shops and on retail shelves, helping to supplement the increased prevalence of home dining in Australia.

https://www.mla.com.au/prices-markets/market-news/impact-of-victorian-processing-restrictions/