Category: Cattle

While wiener vendors at a sausage festival are unlikely to enjoy the heavy rain we saw at the end of last week, weaner vendors in Western Victoria would have rejoiced at the blue, yellow and even purple on the radar.  Prices for weaners have been at four year lows in December, but things may change by January.   

Since last January we’ve seen pasture conditions deteriorate and grain prices rise, neither of which are good for young cattle prices.  Over the last week we’ve seen rain ranging from light to flooding across the east coast.  Despite the rain many key cattle areas in northern NSW and southern Queensland still need another 25-100mm to reach their December average (figure 1).  The drought has not broken yet.

Readers who have been with us for a few years will know we have a couple of measures of value in young cattle markets.  Looking at the absolute price is obviously what vendors are interested in, as it drives their bottom line.  For buyers the values is determined by how much money can be made out of backgrounding or growing out cattle.

The margin in backgrounding fits well with looking value in terms of price of weaners relative to the Eastern Young Cattle Indicator (EYCI).  This spread gives a good idea of restocker demand relative to the young cattle market as a whole, or compared to feeder and processor demand.

Figure 2 shows the average price of weaners at the January sales and the EYCI over the past 18 years.  For 2019 we have estimated a price based on recent store sales, with weaner steers coming in at around 310¢/kg lwt.

If markets are steady in January, a 9.5% weaner steer premium over the EYCI will make them the cheapest weaners in 3 years, and around the average premium.

Returns from backgrouding or growing steers out to Heavy Steers could be described as good to very good based on a conservative price projection.  There was a time when $200 was an acceptable gross margin for backgrounders, and this should be achieved under a worst case scenario.

What does it mean/next week?:

It seems lotfeeders and backgrounders have become quite comfortable with export feeder prices around 300¢/kg lwt.  If weaners sell for 310¢, there is a historically good gross margin in growing them out and selling at 300¢. Figure 4 shows the projected margin (red line) is similar to last year, and right on the 18 year average.

There is plenty of room for upside in the margin, and downside seems limited.  This means weaner price could feasibly be 10% higher, and those with a positive outlook on feeder values could still justify purchasing.  If we see more rain over the coming fortnight this scenario might play out, boosting vendors coffers.

Key Points

• Recent rain should boost confidence in northern cattle areas, but more needs to come.
• December weaner steer price seems to be around average value relative to the EYCI and potential gross margins.
• There is room for weaner prices to rise 10% if more rain falls and demand improves.

Rainfall to vast areas of the Eastern seaboard at the latter end of the week, compliments of ex-tropical cyclone Owen, has seen up to 50-100 mm recorded across Queensland, NSW and Victoria. The deluge has given a lift to cattle prices and provided some early Christmas cheer to producers.  

The Eastern Young Cattle Indicator (EYCI) managed a 2% gain on the week to close at 526.5¢/kg cwt on the back of the widespread rain event (Figure 1). Young cattle prices in WA held firm at the 550¢ level while declining levels of imported NZ grinding beef in the US has seen the 90CL frozen cow continue to climb toward 580¢/kg CIF.

The rainfall appears to be inspiring those looking for young cattle as the EYCI was one of the few NLRS reported categories in the East to post a price gain this week. East coast Feeder, Trade, Medium and Heavy Steers are all registering falls over the week between a 3-17¢ magnitude on a live weight basis. The increase in young cattle prices comes on the heels of elevated supply across the East coast, as higher cattle yarding and slaughter levels in Queensland in recent weeks has supported throughput and cull volumes across the Eastern seaboard.

The most recent Queensland cattle throughput figures show a 34% jump in saleyard numbers week on week to see over 27,000 head presented. The elevated northern volumes are underpinning a lift in East coast yardings to see numbers reach toward the upper end of the normal seasonal variation at 72,000 head, a 20% gain on the week prior (Figure 2).

East coast slaughter figures were also given a boost from Queensland with week on week numbers showing an 18% rise in slaughter in the sunshine state leading to a 9% gain in slaughter levels across the eastern states. This places weekly East coast slaughter numbers at the highest level recorded in six months at 147,531 head (Figure 3).

Next week

The increase in yardings and slaughter is likely to be the final hurrah for cattle supply this season as saleyards and meat works wind down for the Christmas period. Considering the rainfall levels seen recently, this will also give producers the chance to throw an extra few kilograms onto their cattle as we head into 2019.

Anticipate a robust finish for cattle prices for any remaining sales into next week. The current rainfall should set the cattle market up for a decent start off the blocks as we start the new year. This is the last comment for the season from Mecardo as we close shop until mid-January. Have a safe and merry festive season.

Feedlot utilisation levels are a key performance indicator of feedlot operations. Using saleyard data that indicates buyer behaviour of feeder cattle, we have created a forecast model for feedlot capacity utilisation as we head toward 2020.

Utilisation numbers as an indicator of feedlot performance are the preferred index relative to total numbers of cattle on feed, traditionally highlighted as an indicator of industry performance. By accounting for the number of cattle on feed as proportionate to total capacity, we are best able to visualise how feedlots are using the available resources and infrastructure that is available in the industry.

Historical movement in feedlot capacity and utilisation levels demonstrate that capacity increases do not always result in high utilisation of the existing feedlot infrastructure (Figure 1).

While the past two quarters have seen an increase in the number of cattle on feed to consecutive record-breaking numbers, it was not a sign of greater profitability. Utilisation for the past two years has remained volatile but relatively high, between 75-86% utilisation nationally.

The past quarter has seen its fair share of struggles in the feedlot industry. High grain prices, a poor harvest with limited roughage availability and fires in southern Queensland will all place significant difficulties on the feedlot margins going forward into this quarter.

Accounting for these recent developments, combined with weather forecasts, currency outlooks and emerging saleyard trends, we are looking to see Feedlot utilisation levels fall to their lowest point since September 2016 to around 72%.

Capacity changes are expected to have little to no impact on this forecast, with growth last quarter changing less than 1% nationally.

What does it mean?

The prospect of lower levels of feedlot utilisation, toward levels that we have not seen for a while, could reduce the demand for feed grain and other feedlot inputs going forward. Feedlot marketing’s of grain-fed cattle would likely follow the utilisation drop in early 2019; something else to look out for in the new year.

Into the second half of 2019 the model estimates that feedlots will be looking to restock as the utilisation levels are forecast to climb back toward the 85% area. This is potentially a good time for producers with feeder steers to bring them into the saleyard.

Key points:

• A volatile 24 months has been seen in feedlot utilisation, bouncing between 75-86% utilisation.
• Utilisation model forecasting tips feedlots to be at around 70% capacity for the coming quarter.
• The second half of 2019 forecasts a recovery in feedlot utilisation numbers; a good time maybe to have feeder steers in the saleyards.

Cattle markets continue their holding pattern this week as all eyes are on the forecast, looking for the season breaking summer rains.  Finished cattle supplies appear to be easing ever so slightly, and this will support finished prices.

While most are waiting for the rain, some bit the bullet this week and send young cattle to the market.  Figure 1 shows Eastern Young Cattle Indicator (EYCI) yardings hitting a five week high, and posting the second highest level since July.

It has been a dry week, and with little real precipitation on the forecast, the increased yardings saw the EYCI ease (figure 2).  Demand remains good, with feeder, processors and restockers all seemingly comfortable with current levels.

There are some signs that the spring flush of cattle might be coming to an end.  Figure 3 shows east coast slaughter declining for the second week in a row.  The trajectory has slaughter numbers hitting last year’s levels for the first time since April, and it hasn’t happened many times this year.

While the EYCI is sitting 11% behind the same time last year, heavy steers remain strong, they are 9.5% above the level of 2017.  Expensive grain and a lack of grass is making processors pay up for the finished product.

Interestingly heavy young cattle, the type which are heavy enough for the feedlot, are still at a premium to the same time last year.  This is a good indication of how hard it has been to get weight into cattle on grass.

What does it mean/next week?

With no real rain on the forecast we could head in to the Christmas break with young cattle prices on the slide.  It is a sure thing that the market will move in January, but which way depends on the weather. A dry end to December will mean prices open lower, while a wet break will see a stronger opening and will be a boon for the weaner sales.

Terrible fires across Queensland and floods impacting coastal NSW are a cause for concern this week and are taking the focus off cattle markets. At least there wasn’t much to keep an eye on, as sale yard prices across the country remained within a handful of cents of last week’s levels.  

Climate has dominated the news media over the last few days with the fires impacting Gracemere and causing the evacuation order to Rockhampton, which is of particular concern for those with an interest in cattle markets. After spending time in Rockhampton this year for Beef Week and enjoying the hospitality of the locals it makes the footage hit home a little harder, so stay safe any Queenslanders facing these unprecedented fire conditions.

The Bureau of Meteorology released their updated climate outlook for the next three months yesterday which highlights a drier and warmer than normal scenario for much of Queensland during Summer, so hopefully this current fire concern isn’t the beginning of a long, hot battle. The December rainfall forecast for much of the country looks reasonably promising with a 50/50 chance of rainfall exceeding median levels across the southern regions – Figure 1.

A glance at sale yard cattle prices along the East coast saw most categories reported by MLA marginally softer by 4-6¢ on last week’s levels. The Eastern Young Cattle Indicator (EYCI) mirroring the broader market with a 4.25¢ decline to close at 523.25¢/kg cwt – Figure 2.

Price stability is also the order of the week for offshore markets with the 90CL Frozen Cow indicator hovering around the 560¢/kg CIF level for the last month – Figure 3.

Next week

Rainfall relief is expected to hit Queensland, but not until mid-week when parts of central Queensland will get up to 50mm. There are also some light falls for southern Victoria which will help sustain pasture a little longer before producers head into the summer.

We are yet to see how the Queensland fires will disrupt cattle markets and prices into next week, if at all. Historically cattle prices during December are relatively stable and the anticipated outlook for December isn’t likely to disrupt the normal flow of events so expect price consolidation to continue for the short term.

Cattle slaughter has been on the rise, but it was no match for a rainfall led price rally this week.  Despite this, the Eastern Young Cattle Indicator (EYCI) remains below the same time last year, though there are still some indicators that are beating their 2017 levels.

For the week ending the 16^th of November, east coast cattle slaughter ramped up to a five-week high of 139,800 head (Figure 1).  This was driven by the southern states, most notably Victoria, which hit its highest level since May 2016. NSW slaughter was just shy of its highest slaughter level for the year.

In southern states, the cattle are still flowing. With spring coming to an end, it’s not unusual to see rising slaughter, but in Victoria, slaughter was 20% higher than 2017 last week. It seems the herd rebuild might be on hold in Victoria for the time being.

The story is different in Queensland. While cattle slaughter has risen there in the last couple of weeks, it remains similar to this time last year and below the five-year average.

The EYCI had an uptick this week, gaining 11¢ to 527.5¢/kg cwt. Despite higher slaughter rates, the rain across the east coast helped with demand and tightened the supply of store cattle. The EYCI remains 50¢ below the same time last year.

Interestingly, feeder cattle prices sitting around 300¢/kg lwt are close to the same time in 2017.  Despite grain prices being up to 30% higher than last year, the dearth of cattle finished on grass is seeing high grainfed cattle prices continue to support feeder values.

What does it mean/next week?:

There isn’t a lot of rain on the forecast for next week, but the amounts we’ve seen in the last couple of days should be enough to provide continued support for cattle prices. Historically, cattle prices remain steady at this time of year, usually through until Christmas.

However, with higher prices has come higher volatility. We think there is still upside for store cattle but finished cattle values might find a rally a bit harder.

Cattle price movements across eastern states sale yards are a little mixed this week as throughput levels return to seasonal norms and the Bureau of Meteorology (BOM) release their mid-month climate forecast.

The rainfall outlook for December, released by the BOM yesterday, shows wetter than average conditions anticipated for east/central NSW, eastern Victoria and the southern coastal tip of WA – Figure 1. Additionally, for the first time in many months the remainder of the nation shows that a relatively normal rainfall pattern is expected for the coming month. Despite the improved December outlook, the El Nino watch remains on alert, which suggest around a 70% chance of it occurring into early 2019.

In sale yards across the Eastern seaboard price movements were mixed for the NLRS reported categories. Heavy Steers continue to outperform the herd on a week on week basis demonstrating a 3% lift to close back above 300¢/kg lwt. Eastern Heavy Steers are also the only category to continue to shine on a year on year basis with prices sitting 6.5% above this time last season – Figure 2.

Eastern Trade Steers are the only other cattle type to gain for the week with a small 1.1¢ lift. All other categories are marginally softer, posting falls between 1-3¢, except for Medium Cows that shed 5.5% on the week to close at 203¢/kg lwt.

The Eastern Young Cattle Indicator (EYCI) is holding its ground this week with only a 2¢ decline to close at 516.5¢/kg cwt. Across in the West, young cattle prices are also posting a marginal change, albeit in the opposite direction to the EYCI, with the WYCI recording a 1.75¢ lift to 563.75¢/kg cwt.

After last week’s slightly elevated cattle yarding levels the throughput on the east coast reverted towards the seasonal five-year average levels with a 12% drop week on week to see the throughput for this week sit at just over 54,000 head – Figure 3.

What does it mean/next week?:

The rainfall forecast for next week, 10-50mm falls are expected for the south eastern quadrant of the country. Eastern Victoria should get the best of the rain, but reasonable falls are anticipated to extend into much of the Eastern half of NSW.

The rain for the coming week and the prospect for a wetter December should provide some support for cattle prices in the next week or two, particularly for finished stock.

There has been more rain about this week, but it couldn’t stop the Eastern Young Cattle Indicator (EYCI) falling. Young cattle prices are coming off six-month highs, and we thought the Melbourne Cup was supposed to the stop the nation, but it only stopped a few thousand cattle.

Figure 1 shows there was a heavy fall in EYCI yardings this week, with 25% fewer young cattle hitting the yards. It wasn’t all on Tuesday in Victoria. In fact, yardings were down all up the east coast. Prices were also down in most centres, which is strange given the rain, but trade cattle prices were relatively steady.

Perhaps restockers have their fill of cattle for the time being and are holding off while waiting to see if more rain arrives.  The indicators do give the impression restockers cooled off.  The National Restocker Indicator fell 17¢ to 291¢/kg lwt, while feeders were relatively steady, and trade steers eased only 6¢ to 287¢/kg lwt.

Figure 2 gives a good indication why finished cattle prices aren’t falling with store cattle. The supply of slaughter-ready cattle is on the wane, which is unusual for this time of year. The dearth of grassfed cattle, along with cow retention with a bit of rain, has seen east coast cattle slaughter fall to its lowest full week level since March.

Lower Australian supply has seen a rally in export beef prices, they gained 7¢ in our terms this week to 562.5¢/kg swt. The rally was strong in US terms, but improving trade prospects saw the Aussie dollar rally above 72¢.

Next week?:

The cattle market is still waiting for that widespread rain which can sustain a price rise. At the moment restocker supply and demand is waxing and waning, seeing some volatility in the EYCI.  Finished cattle values have been much steadier and are unlikely to ease until there is a good supply of grassfed cattle again.