Category: Cattle

The recent rain has provided a lift to cattle prices last week across the East coast and producers responded this week to the improved prices with increased offering at the sale yard. The extra numbers putting a bit of a dampener on the rally for most categories of cattle.  
The Eastern Young Cattle Indicator (EYCI) eased 1% this week to close at 535.25¢/kg cwt. Given that yarding of EYCI eligible cattle was up 40% on last week’s figures the magnitude of reduction in price isn’t too bad. EYCI eligible cattle averaged 18,636 head per day this week compared to the 13,303 head seen last week and yesterday saw the first yarding in excess of 20,000 head since July.

Across the Eastern seaboard cattle prices eased between 1-9% for most reported categories with Heavy Steers the only group to manage a slim price gain of 0.8% to creep back above 300¢/kg lwt – Table 1.

Increased yarding levels the likely culprit for the stalled rally with East coast throughput returning to average seasonal levels this week to see a 39% lift in numbers on the previous week to see nearly 49,000 head change hands at the sale yard – Figure 1.

Domestic and offshore prices have converged in recent weeks with the recent rain providing a boost to the EYCI. Improved demand for grinding beef from US buyers has seen the 90CL gain 1.3% to close at 555.4¢/kg CIF.

Next week

Further rain is forecast for much of the country next week, although it is a bit light on for Queensland and WA with less than 10mm anticipated there. The big falls (15-50mm) are reserved for NSW, SA, Tasmania and Victoria.

Expect the EYCI to hold its ground this week given the rainfall forecast and potentially probe a bit higher toward the 550¢ level to bring it more in line with the 90CL and young cattle prices in the west.

The patchy rain continued this week and so did the price rises. The Eastern Young Cattle Indicator (EYCI) is following a similar trend to last year. In 2017 the October rally lasted through until the end of the year. There is a good chance we are going to see a similar trend this year.

This week’s rain tipped the month to date total over the average for much of the northern half of NSW and south east Queensland. For cattle markets, it saw further increases. The 22¢ lift in the EYCI saw the market hit a six month high of 541¢/kg cwt.

NSW was the epicentre of the price rises, with CTLX, Tamworth, Singleton and Gunnedah all recording average young cattle prices higher than 560¢/kg cwt. It was Victoria’s turn to languish though, with Barnawatha the only yard to record a price above 500¢.

A few weeks ago, in an article on what would happen if it rained, we put the red arrow on Figure 2.  It’s nice to be right sometimes, but had export prices managed to hold their ground we’d have pegged the market for more upside. The weakening Aussie dollar hasn’t managed to support a tanking 90CL price in the US. In US terms our export beef is down 13% on this time last year.

In the West, the wet October has reached some of the south west cattle country, and we can see the impact on the WYCI. Cheaper grain also helps WA maintain a premium to east coast values.

Next week?

More rain should equal more price rises. The best forecast is for central Queensland, which should have some positive price impacts. While manufacturing beef export prices are lower than this time last year, higher value cuts seem to be maintaining good prices. The supply of finished cattle won’t improve with rain, it takes a bit longer, so we can probably expect stronger values to last until the end of the year and translate into support for young cattle.

Last week the United States Department of Agriculture (USDA) released their ‘Livestock and Poultry: World Market and Trade’ report which details supply and demand figures for 2018 and forecasts for beef, pork and chicken for 2019. We’re interested in the beef side, with the USDA forecasting a global increase, despite a fall here in Australia.

The USDA has pegged 2018 beef production at a record level and expects 2019 to post yet another high (Figure 1). Growth from the world’s two biggest beef producers, the US and Brazil, is expected to push world beef production to 63.6 million tonnes, up 1.2% on 2018.

Since the blip seen in 2015, beef production has continued to grow and the fact that prices have remained relatively strong in the US is a pretty good indication that beef demand is also improving.  Stronger demand is further evidenced by rising world exports. Figure 1 also shows global beef exports reaching a record high in 2019 of 10.5 million tonnes. Export growth is being slowed to only 0.2%, contributed by the expected decline in Australian beef production and exports.

Figure 2 shows US and Brazilian beef production rising by 3% and 3.6% respectively, with most other major beef producers also increasing production. Australia is the anomaly, with beef production expected to be down 5.2%, which the US think will translate into a 7.4% decrease in exports.

Australia will remain a major beef exporter, expected to hold onto third position over the US, just (Figure 3).  The fact that a herd rebuild will see Australian beef production fall, means that there will simply be less for export.

Falling beef production over the coming year might be a bit of a concern for the Australian industry.  The USDA is expecting the growth in Chinese beef imports to continue, with a 10% increase making them the world’s second largest beef importer after the US itself. Our other major markets, South Korea and Japan, are also expected to grow imports, by 7% and 1.8% respectively. This growth is expected to be supplied by the US, with their exports growing by 2.6%.

What does it mean/next week?:

While falling beef production in Australia is good for cattle prices in the short to medium term, the fall in exports is a bit concerning for the longer term. Australia won’t be able to supply the growth in major export markets, which will obviously result in a loss of market share. Interestingly, the USDA does expect Australian production and exports to be larger than in 2016 and 2017, which might be optimistic.

Key Points

• The USDA projects global beef production to increase to record levels in 2019.
• Despite a drop in Australian production, the USDA forecasts global exports to be up.
• Rising import demand from China, Japan and South Korea will see Australia lose market share.

Well it doesn’t rain grass, but it was great to see reasonable falls across much of the country this week. It’s not going to green up the pasture right away, but it was enough to get some green splashed across the weekly cattle price movements reported by NLRS as sale yard numbers remain thin for this time in the season.  

There wasn’t much of the country that didn’t get rain during the week, some unlucky spots only managed 5-10mm, but good swathes of the Eastern seaboard saw falls between 15-50mm. It was especially good to see the rainfall extend into the western regions of NSW – Figure 1.

First to show signs of green were the weekly price movement for East coast cattle with every NLRS reported category reporting a lift – Table 1. The Eastern Young Cattle Indicator (EYCI) posting a 4% gain to finished at 519¢/kg cwt. Medium Cow responding best to the damp with a 10% jump to 219.5¢/kg lwt, while Heavy Steer the least responsive managing just a 0.5¢ lift to close at 290.3¢/kg lwt.

Producers with Heavy Steers to turn off can’t be too disappointed though with finished cattle prices managing to hold firm over the past few months in the face of declining store/young cattle values. Indeed, fat cattle still managing to hold 4.6% higher than where it was trading this time last season despite the tough seasonal conditions and an indication of the tight supply facing the market.

The most recent weekly East coast cattle throughput figures showing just how tight it is now. Cattle yardings running 27% below the five-year seasonal average for this time in the year and dipping below the lower boundary of the normal seasonal range with just under 44,000 head traded – Figure 2.

Young cattle in the West managing to replicate the East coast movements with a 2% lift on the week to see the WYCI close at 569.25¢/kg cwt, while offshore markets are holding firm with the 90CL Frozen Cow Indicator steady at 553.2¢/kg CIF.

Next week

Decent rainfall continues for all the eastern half of NSW and the south east pocket of Queensland next week which will continue to provide a boost to producers in these regions, but the remainder of the country returns to falls of less than 5mm.

It’s unlikely to see the EYCI surge too far on the back of the recent rain and the spectre of an El Nino event still looms for the end of 2018, which will keep a bit of a cap on buyer enthusiasm for young cattle. Broad consolidation in prices still seem the order of the day.

Another week with some rain about and more on the forecast has cattle markets showing signs of improvement. The Eastern Young Cattle Indicator (EYCI) headed back towards 500¢, while Heavy Steers continued to show strength.

The 3.5% rally in the EYCI this week (Figure 1) looks small compared to the moves of recent years, but prior to 2015, it would have been considered massive. The October fall in the five-year average is of similar proportions to this week’s move. It’s an illustration of the volatility that historically high prices can bring.

Young cattle yardings were predictably low, as growers wait to see what the rain forecast will bring. The 12,000 head yarding (Figure 2) was up on the holiday affected yarding of last week, but still low for this time of year.

After being at inexplicably low levels last week, sitting at just 170¢/kg lwt, the Victorian Restocker Indicator rebounded back towards the NSW and QLD restocker prices, at 245¢. Queensland restockers are paying the most, with the indicator up 9¢ this week to 284¢/kg lwt.

Heavy and Trade Steers continue to lead the price charge. The heavies are expensive in Victoria while Trades are in NSW, at 525¢/kg cwt and 535¢ respectively. Finished cattle are the scarcest commodity at the moment. Normally at this time of year grassfed cattle are starting to hit the market.

In WA, the usual spring price decline is taking time to come to fruition. The lack of finished cattle and high-value beef from the east coast might be helping to prop up the grassfed cattle market in the west. The WYCI sits at 542¢/kg cwt, up 1¢ for the week.

Next week?:

There is plenty of green on the rainfall forecast map, which while not drought-breaking, will continue to see growers hold on and restockers nervous about where prices could go with a big rain. The first stop is around where prices were this time last year.

Finished cattle prices are already at last year’s levels, so don’t expect as much upside for those categories.

East coast cattle yardings continued to climb this week, spurred on by Victorian producers bringing stock forward. However, a breakdown of the throughput figures indicates that young cattle producers have begun to shy away from offering stock as the Eastern Young Cattle Indicator (EYCI) eased 6.25¢ to close at 480.75¢/kg cwt.  

Victorian cattle yarding levels lifted 15% as Southern producers take advantage of relatively firm prices for Trade, Medium and Heavy Steers. All three categories of Victorian Steer prices are marginally ahead of levels set this time last year and with the prospect of pasture decline as the weather warms it seemed enough to get producers to begin presenting cattle for sale.

The increased Victorian numbers underpinned a 7% lift in broader East coast throughput levels to see it move toward the upper end of the normal seasonal range in yarding levels for this time of the year with just over 56,000 head changing hands (Figure 1).

The higher volumes across the Eastern seaboard saw most categories of East coast cattle stage a price decline on the week, albeit marginally with falls of 2-5¢ noted. Indeed, Medium cow was the only East coast category to post a lift this week to close at 210¢/kg lwt (Table 1).

Curiously, young cattle yardings bucked the trend of the broader East coast cattle yarding level with the throughput for EYCI eligible cattle declining sharply to see average weekly numbers back below 10,000 head and trending along the bottom end of the normal range (Figure 2).

Year on year price changes was a likely reason for the pullback in young cattle offerings from producers. The EYCI is sitting 10% below levels set this time last season, while most other categories of cattle across the East coast are on par with 2017 levels.

The weaker EYCI isn’t finding support from offshore markets either with the 90CL frozen cow indicator shedding 5% to close at 555.5¢/kg CIF. Relatively firm US beef inventories and the prospect of additional supply out of New Zealand in the coming months is weighing on prices.

Next week

The Eastern coastal regions of NSW, Victoria and Southern Queensland are due for a 25-50mm soaking this week but not much is going to make its way into the middle nor western part of these states.

Adequate rainfall in some areas and the reduction in young cattle yarding numbers may offer some prospect of price support in the short term for the EYCI. However, broader seasonal trends in throughput suggest that cattle prices will continue to face headwinds. A softening 90CL won’t allow the EYCI to gain any real upside momentum either. It seems more likely a case of continued consolidation at current levels with a slight bias to the downside for the short-term outlook.

Perhaps a bad omen for last weekend’s football finals but the cattle markets have provided little to crow or sing about with higher supply weighing on cattle prices across the Eastern States this week.

Table 1 outlines the major cattle price movements as of the close of trade mid-week with falls noted across all categories except Medium Steers. The Eastern Young Cattle Indicator (EYCI) dropping 12.5 cents on the week to close at 490 ¢/kg cwt.

East coast cattle slaughter has lifted above the seasonal weekly average for the first time in over twenty-two weeks for the week ending the 21^st September registering nearly 146,000 head processed – Figure 1.

Slaughter figures not the only elevated supply statistic putting pressure on price this week with the East coast yarding levels 13% higher to see 52,452 head of cattle change hands at the sale yard.  Throughput levels in Queensland and Victoria contributing most to the lift in yarding with these two states the only regions to see a weekly figure recorded above the five-year seasonal average, with Queensland the stand out state for throughput sitting 47% above the weekly seasonal average for this time of the year at nearly 20,000 head reported.

The lift in East coast yarding levels enough to push the trend back into the upper band of the normal range, with higher yarding as we head toward October a potential outcome if the average seasonal pattern is to be replicated this season – Figure 2.

Please note sale yard prices reflect Wednesday market close as this piece was prepared Thursday due to the AFL holiday in Victoria on Friday.

Next week

Some light rainfall is forecast for much of Southern Australia next week, but at maximum falls between 10-15mm it is probably not sufficient to get cattle prices kicking higher in any significant manner.

As outlined earlier, regarding yarding levels likely to rise as we head to October, the more probable scenario is for a flat to slightly softer EYCI in the coming weeks. If your team is in the finals, good luck. If not, enjoy the extended weekend.

Cattle markets managed to edge higher this week, despite stronger supply. The Eastern Young Cattle Indicator (EYCI) moved back above 500¢ and within a tick of the price this time last year. It’s the spreads in restocker values we are interested in this week though.

Figure 1 shows the EYCI taking its rally up 11% from the lows to hit 501¢/kg cwt. Last year the market reached its low of 504¢ in early October and given the price of grain, and the lack of grass, it is remarkable to see it at similar levels.

Even with young cattle supply lifting to a six week high (Figure 2) prices managed to continue to lift.  Delving a bit deeper into the EYCI data we can see that the proportion of yearling cattle has risen in recent weeks. As we keep saying, demand for finished cattle remains good so those hitting the market are well sought after, which is dragging the EYCI higher.

It was the quotes for restocker steers in MLA’s data which caught our eye this week. In Victoria restocker steers were quoted at 229¢/kg lwt. In Queensland restocker steers were 274¢. You would be forgiven for thinking Victoria was in drought, and things were okay in Queensland. We know it is currently the opposite scenario, with at least parts of Victoria faring okay. It might the depressing rainfall outlook which is limiting demand for young cattle.

WA still has the best cattle prices in the country. MSA Yearlings are quoted at 565¢/kg cwt, 37¢ stronger than their NSW counterparts. Normally finished cattle start to flow in the West at this time of year, which could see some price adjustments coming up.

What does it mean/next week?

Rain will remain scarce over the coming week, with only a thin strip of northern NSW coastline seeing anything meaningful. It’s starting to look like supply is going to be fairly stagnant, with few cattle left to really flood the market. This means prices might stagnate as well, with obvious strong upside when it finally does rain properly.

A 1.5% gain in the Eastern Young Cattle Indicator (EYCI) has encouraged a lift in yarding of young cattle, with the highest weekly throughput of EYCI eligible cattle recorded in fifteen weeks noted this week. Improved prices for most categories of East coast cattle saw the broader yarding figures lift too, but levels still remain below the normal range.  

The weekly and yearly change in East coast saleyard cattle prices are highlighted in Table 1, which shows all bar Trade steers managed an improvement. On a yearly basis, it is only the EYCI eligible cattle that are underperforming in any significant manner despite the 7.25¢ gain achieved this week to close at 495.75¢/kg cwt.

Heavy steers and Medium cows continue to lead the pack, both in terms of weekly gains and their price level compared to the 2017 season. Medium cow managed a 6% gain to 221¢/kg and Heavy steers posted a 4% rise on the week to 294¢/kg lwt, with both categories sitting around 10% higher than this time last year.

The mid-month weather update from the Bureau of Meteorology (BOM) was released yesterday showing a continuation of the drier than normal rainfall pattern is expected for much of the country over October, although some parts of the Eastern seaboard are beginning to revert to a relatively normal October pattern. However, it’s not until November that the season starts to look more promising for much of the South Eastern quarter of the nation (Figure 1).

Improved prices across most cattle categories this week has prompted a 7% lift in East coast yardings to nearly 38,000 head. Despite this, increased throughput levels are still trending below the normal range for this time in the season and are around 20% below the seasonal five-year average for mid-September (Figure 2).

Next week

The rainfall outlook for next week returns to limited falls across most of the nation, except for coastal Victoria, so it’s unlikely to see any further rainfall inspired price gains. If the improved prices encourage further lifts in throughput back toward more normal seasonal levels, we could be in for a slight easing of prices as we head toward the last week of September. Particularly with the prospect of a drier than normal October just around the corner.

Processor margins remain elevated and have moved back above the upper end of the normal range during August. The healthy margins appear to be encouraging processor optimism at the saleyard according to the behaviour of the spread pattern so far this season. However, is the optimism enough to spark a rally in the EYCI.

The Mecardo processor cut-out model shows that margins have improved over the month to see the average margin level lift from $81.50 per head in July to $180.65 in August. The rebound in the processor margin places the August figure back above the normal margin range, as identified by the grey shaded region in Figure 1 – which represents where the margin has fluctuated for 70% of the time since 2000.

The improvement in processor margins this season began in March and have been recording above-average returns since. Underlying data of buyer behaviour at the saleyard for EYCI eligible cattle shows the weekly spread processors have been prepared to pay above or below the EYCI has been improving since March. It has moved from a discount of 7% in March to a peak of 4% premium in August (Figure 2).

The EYCI processor spread has softened over early September as the EYCI rallied from 444¢ to 490¢. This suggests that processors aren’t inclined to chase the market up despite the good margins being achieved but are more comfortable to provide buying support on dips.

Analysis of the long-term EYCI processor spread pattern, based off the monthly average spread movements since 2004, shows we are nearing all-time highs at a premium spread of 2%. The last time processors were paying average monthly premium spreads in the 2% premium region was during 2014 when offshore demand from the USA was booming and processor margins reached nearly $400 per head monthly (Figure 3).

What does it mean?  

It’s hard to see processor activity driving the EYCI higher in any sustained manner, given we are already near extreme historic levels with regard to the spread behaviour. Despite the robust processor margins being achieved at present, they are still a fair way short of the margins that were being made during 2014. Even processor margins over $300 per head weren’t enough to get the processor spread premium extending higher.

A more likely scenario is to continue to see processors actively supporting the young cattle market anytime we see a price dip towards the 420-450¢ level while their margins remain above average.

Key points:

• The monthly processor margin has lifted from $81.50 in July to $180.65 in August, per head of animal processed.
• Improved margins have seen processors more willing to pay up for cattle at the saleyard with the processor spread narrowing from a 7% discount to a 4% premium from March to August.
• Robust processor margins are more likely to provide firm price support on any market dips rather than spark a fresh rally.