Category: Cattle

It would seem those that were hanging out for stronger prices for young cattle have found them, and are taking full advantage.  The only up to date supply data we have is Eastern Young Cattle Indicator (EYCI) yardings, and they made a run this week.

Figure 1 shows a sharp jump in EYCI yardings this week, despite a public holiday in Victoria, with the week to Thursday seeing 29% more young cattle yarded for the week.  The yarding was the second highest level for the year, and the third highest since May 2017.

Demand seems to have largely matched the rally in supply.  The EYCI fell just 3.75¢ for the week to sit at 561¢/kg cwt, which remains 52¢ below the same time last year.

There was some strength in slaughter cattle markets in NSW and Queensland.  Heavy steer indicators gained 8¢ and 12¢ in Queensland and NSW respectively, while Cow Indicators were up 20 and 15¢.

Queensland Cows, at 460¢, are actually 24¢ above the same time last year.  In fact, most Queensland indicators are better than the same time last year, while in the south they are worse.

In export markets the Frozen Cow 90CL indicator has spent yet another week at around 600¢.  It’s now five weeks straight the 90CL has remained steady, and it’s also close to last year’s level.

In the west young cattle prices are maintaining their premium, just.  The WYCI fell 10¢ this week to 563¢/kg cwt. This, and the fact growers seem to be happy with these values, suggest we might be close to ‘fair value’ young cattle at the moment.

What does it mean/next week?:

At this time of year it’s hard to see supply staying strong for long.  If demand can be maintained, especially from restockers, this suggests there might be a bit more in the EYCI rally.  It has a bit of a way to go to reach the 90CL indicator, but rising grain prices might inhibit some of the upside.

A good dumping of rain in Queensland over the week has seen East coast cattle throughput fall back toward more normal levels, led by declines in Queensland. The rain and lower supply has provided some support to northern cattle prices and has given the Eastern States Young Cattle Indicator a lift, closing 5% higher to end the week at 565.5¢/kg cwt.

Figure 1 shows the effect of the significant tropical low over Queensland that generated total weekly falls in excess of 200mm in some parts of the north west, northern interior and northern tropical coast of Queensland.

The impact of the northern rain has seen Queensland cattle yarding levels ease 41% over the last fortnight toward levels much more consistent with the longer term average pattern for this time in the year – Figure 2. The drop in Queensland cattle throughput has been mirrored in the broader East coast figures, with a 28% decline noted over the last two weeks to see it sit 6% above the five-year average at just over 56,000 head.

State sale yard cattle indicators, as reported by NLRS during the week, show that gains in Queensland cattle categories ranged between 5% to 20%. Queensland Vealer Steers were the standout performer, with a 60¢ rally early in the week to reach 357¢/kg lwt. NSW and Victorian cattle prices were a little more muted, with most categories flat to 5% higher.

In the West young cattle eased 3.8% on the week to return to levels more consistent with their East coast counterparts, the WYCI closing at a mere 3.25¢ above the EYCI to reach 568.75¢ yesterday. In offshore markets, the 90CL Frozen cow continued to trek sideways, closing slightly softer on the week, 1.7¢ lower to 599.9¢/kg CIF.

What does it mean/next week?:

There is another huge tropical low sitting to the north of Queensland, but much of the significant rain from this is forecast to fall into the Gulf of Carpentaria, with only 10-25mm making its way onto land in the far North.

Given the volume of rain into Queensland over the last fortnight, it’s unlikely that cattle prices will ease much there in the week ahead. The 90CL is likely to find some continued support into the coming month as a firm domestic price outlook will keep buyers keen for imported grinding beef.

It rained last week, and it’s going to rain in the dry areas. By the end of next week the whole of Queensland will be wet. Parts which haven’t been wet for five years will be wet. It’s been long awaited, but finally we have seen enough rain to give the market a bit of upward momentum.

In the young cattle space the market finally turned. It’s been eight weeks of gradual easing, but this week demand picked up and the Eastern Young Cattle Indicator gained 17.75¢ to 539¢/kg cwt (figure 1). Interestingly, EYCI yardings were actually higher, which is a tell-tale sign of stronger demand.

Despite the rally, figure 1 shows us that young cattle are still pretty cheap relative to the last two years at this time.

Most cattle categories gained ground this week as overall cattle yardings dropped back towards more normal levels. Cow and Heavy Steer prices picked up slightly, but remain stuck in the narrow range they’ve been trading at so far in 2018 (figure 2).

There was one indicator which caught our eye. Restocker steers in Victoria were priced at just 232¢/kg cwt.  A whopping 143¢ lower than this time last year, and 100¢ below the national average restocker steer. It was probably on very small numbers, but someone got a bargain.

Things were fairly steady in the west, the WYCI at 579¢/kg cwt maintaining its premium to the east coast market. Recent rain in the west might see further upside, but the 90CL price at 600¢ suggests upside is limited.

The week ahead

Over the last 12 months Western Queensland’s rainfall has been in the ‘very much below average’ decile.  In figures its rainfall has been 100-400mm below average. Figure 3 shows that in some parts at least, the rainfall deficit will be rectified over the coming week. We know grass doesn’t appear instantly, and neither does demand, but there aren’t going to be many cattle coming out of Western Queensland for a while.

• The live cattle trade flow to Indonesia remains under pressure due to high local prices and stiff Indian competition.
• Chinese live cattle volumes are showing signs of a resurgence, particularly in the last quarter of 2017.
• Vietnamese demand for Australian live cattle continues to remain robust.

A comparison of historic seasonal monthly live cattle trade flows shows that it isnot uncommon to see January post the lowest cattle movements for the year. This is because the monsoon weather patterns generally make it more difficult to get cattle out of the northern ports. This January, total live cattle consignments have started the season in a similar fashion to 2017 – below the five-year January average by about 15%, but still within the normal range.

Figure 1 highlights the historic seasonal trend which shows that we are pretty much on par with last year with 64,400 head reportedly making their way offshore. Meat and Livestock Australia (MLA) report that a total of nearly 880,000 head of cattle left the country during 2017, some 20% below the average annual volume for the last five years.

The impact of tighter local supply and subsequent high prices having an effect on offshore demand, particularly in Indonesia – where competition from Indian buffalo meat continues to pressure the flow from Australia. Indeed, nine months of the 2017 season saw live cattle flows to Indonesia fall short of the comparable monthly seasonal average, based off the five-year historic data (Figure 2). The last quarter of 2017 was particularly soft with trade flows averaging 27% below the five-year trend and 34% under the comparable period during 2016.

Chinese flows appear to be becoming more frequent, after a somewhat sporadic season in 2017 with successive live trade reported for the last four months – figure 3. Indeed, 2017 was a bit patchy with no trade reported during May, August and September. However, Chinese demand finished 2017 strongly with average monthly flows of the last quarter of the season sitting 27% above the five-year final quarter average. January 2018 has started the season a little muted, sitting 10% below the five-year January average with nearly 3,700 head reported.

In contrast, live cattle flows to Vietnam have performed strong and steady, with nine months in the 2017 season posting volumes above the respective monthly long-term average pattern – figure 4. The second half of 2017 was particularly solid with average monthly flows over the period coming in 80% higher than the seasonal average trend. January 2018 consignments have shown a similarly robust start to the year with more than 17,000 head reported, a 70% gain on the five-year January average.

What does it mean?:

It’s not uncommon to see a strong start to the live slaughter cattle trade to Vietnam at the beginning of the year as the country gets prepared for the annual Tet New Year celebrations, usually held late January/early February.

However, the strong performance of Vietnamese demand for Australian live cattle throughout much of 2017 is a promising sign given that these flows account for around 15% of the total live cattle trade out of Australia, based off the five-year average market share.

The high local cattle prices appear to have had limited impact on Vietnamese flows over the 2016 and 2017 seasons. As local production increases and prices ease toward the end of the decade with the herd rebuild gaining momentum there is a good chance this will translate to greater Vietnamese demand in the coming years – particularly as their population grows in size and in average wealth.

A surge in cattle yardings in Queensland and NSW this week failed to make a huge impact upon prices with markets ending the week fairly mixed. The Eastern Young Cattle Indicator (EYCI) only marginally softer, down a mere 3.25¢ to close at 521.25¢/kg cwt.

Table 1 highlights the mixed fortunes for the week, with lighter East coast steer categories mirroring the EYCI, posting marginal falls. East coast Trade Steers were the weakest, off 3% to close at 273.2¢/kg lwt. In contrast, East coast steers remained reasonably flat at 260.7¢, while Medium cows managed to lift 1.4% to 196.1¢/kg lwt.

In the West, young cattle were given a bit of a shake up, dropping 3% to 574¢/kg cwt, although still sitting relatively comfortable running 10% higher than Eastern states young cattle. In offshore markets, the 90CL frozen cow was steady above 600¢/kg – Figure 1.

Figure 2 demonstrates the surge in East coast cattle throughput on the week with a 42% gain recorded to just of 78,000 head. This pushes weekly yarding levels to well outside the normal variation than can be expected for this time in the season, and places it 28% higher than the five-year seasonal average.

The surge in East coast yarding levels this week was supported by increased throughput in Queensland and NSW. Indeed, Queensland cattle yardings of over 32,500 head represent a doubling of the numbers seen at the saleyards last week and NSW posted a 26% lift in numbers to over 31,600 head.

What does it mean/next week?:

Compared to the five-year seasonal average throughput pattern, the Queensland yarding figures posted this week are 73% higher, while the NSW throughput is elevated by 30%. It’s likely that this elevated yarding is a reaction to the muted wet season, although there was some reasonable rainfall recorded along the Eastern regions of both NSW and Queensland this week.

Given the increased numbers at the sale yard, it’s a reasonably good sign that prices didn’t soften too much across the East coast, a signal that demand is robust enough to soak up the added volume. More rain is forecast for much of the north east of the nation this week and this could see throughput levels return to more normal conditions, particularly in Queensland and NSW. If demand can be sustained, the reduced throughput could see cattle prices gain towards the end of February.

• The annual average ratio of female cattle culled in Queensland as a proportion of the total slaughter for 2017 was 40.4%, a fraction below the 2016 figure and well below the slaughter measure reached during the 2014 herd liquidation of 46.5%.
• Price spread behaviour of Queensland restockers suggests the buyer activity for this group is relatively normal for this time in the season, compared to the historical data set.
• Northern restockers have been active in greater volumes, compared to the south, buying well above the weekly average volume for young cattle since the start of the season.

The recent Australian Bureau of Statistics (ABS) cattle slaughter data for December 2017 shows a spike in the proportion of females as a percentage of total slaughter for Queensland and suggests the delayed start to the wet season is leading to a herd destock in the north. However, the ABS data is lagged so its unclear yet if this trend has carried into 2018 – fortunately the underlying EYCI data may provide a clue as to what northern restockers are doing at the moment.

Figure 1 highlights the increased female slaughter pattern in Queensland, showing that since Spring the kill levels for females as a proportion of the total slaughter has been somewhat elevated from a historic perspective, trekking above the upper end of the normal range.

However, it is yet to reach the very high levels consistent with the herd liquidation experienced during the 2014 season, when the annual average percent of females slaughtered as a proportion of the total kill reached 46.5%. Indeed, the annual average for 2017 came in at 40.4%, a fraction lower than the 2016 level of 40.5%.

This seems to suggest that while the increase in Queensland female slaughter ratio in December was a little alarming, it’s not panic stations just yet. Taking a look at the underlying EYCI data for restocker activity in the north we are able to assess what the impact to the delayed wet season has been on herd intentions by looking at both price and volume behaviour of the northern restockers.

Figure 2 shows that northern restockers (sale yard restocker young cattle buyers north of Dubbo) were paying higher than average premiums for their young cattle purchases compared to the broader EYCI, suggesting that optimism is still reasonably healthy amongst this group of buyers.

Furthermore, filtering the underlying EYCI data to just restockers in Queensland (from the four southern Queensland sale yards that contribute to the EYCI) shows that there was a rise in the premium spread to the EYCI during February toward the top of the normal seasonal range. Although it is noted that Queensland restockers, as of last weeks closing prices, were now paying slightly under the seasonal average premium to the EYCI for this time in the year – figure 3.

What is really interesting though are the volumes of young cattle being bought by northern restockers compared to their southern counterparts at the sale yard, compared to the normal seasonal averages. Figure 4 shows that northern restockers have been pretty active so far this season with average weekly volumes of young cattle being bought by northern restockers trending well above the seasonal average, particularly compared to the southern restocker pattern, which is trending slightly below the average.

What does it mean?:

The lag on the ABS data makes it difficult to give a clear answer as to whether the herd is being liquidated in Queensland so we will have to wait to see what develops there as the 2018 monthly data becomes available.

However, its fairly certain that despite the spike in the female slaughter ratio that occurred in December for Queensland, it is nothing like the 2014 season. Furthermore, the underlying EYCI data on both price spread relationships and volumes suggest that we don’t need to sound the alarm on a herd liquidation in the north – just yet.

Key Points

• Rainfall in Queensland was weaker than forecast, but we have seen supply tighten in a relative sense in Queensland.
• Victorian and NSW cattle slaughter has been stronger, pushing total east coast slaughter higher than last year.
• There is potential for cattle slaughter to fall with good rain, putting upward pressure on prices.

We’ve seen some rain in Queensland, and it has had an impact on slaughter in the north at least.  It’s in the south however where finished cattle supply has ramped up, with lower capacity in South Australia being made up further east.

The rainfall which fell in Queensland a couple of weeks ago was not quite as widespread as expected. Much of the precipitation was in the far north and within 200kms of the east coast.  Figure 1 shows that most of Queensland is yet to hit 60% of average wet season rainfalls, with two and a half months to go.

There appears to have been some impact on cattle supplies, at least in Queensland. Figure 2 shows that Queensland weekly slaughter looks like it might dip under last year’s levels if it remains around the 65,000 head mark.

South Australian slaughter is well down on last year. The fire at TFI has slaughter down 28% in South Australia, but stronger slaughter in NSW and Victoria has total east coast levels stronger than last year.

Victoria killed 17% more cattle than the same week last year, while NSW is up 8%. This has east coast slaughter last week sitting 5.2% above the same time last year (figure 3). In fact, last week’s slaughter was higher than any week before the middle of May in 2017.

In late January and early February, east coast cattle slaughter was 14% above last year’s levels, and the ‘relative’ tightening in supply is likely to be behind the steady to slightly higher prices last week.

On average east coast cattle slaughter tracks sideways from now until the public holidays come again at the end of March.  However, we have seen slaughter levels rise or fall sharply at this time of year with rainfall, or lack of, usually the driver.

What does it mean/next week?:

While the rain hasn’t seen slaughter fall, the rise seems to have slowed. Additionally, in their projections MLA forecast 2018 slaughter to be up 3% this year. So far in 2018 slaughter has been up 8% according to MLA’s weekly numbers.

If MLA’s numbers are to be correct, slaughter levels will have to track closer to last year’s levels for the remainder of the year. While export demand will be the main driver of prices, tightening slaughter should see some improvement in prices relative to export values.  If slaughter remains better than 5% stronger than last year, we can expect a more pronounced supply contraction somewhere down the track, likely in the winter.

Young cattle yardings are building. This week Eastern Young Cattle Indicator (EYCI) yardings hit an 8 month high, and prices reacted accordingly, drifting lower, and heading back towards the low set in the spring.

Figure 1 shows EYCI yardings hitting 22,218 head on Thursday, up 6,312 head for the week. It was the highest EYCI yarding since May last year, and only the second time it’s been above 20,000 head in that time.

The major culprits causing the higher yarding were the EYCI’s biggest yards. The Roma store sale had 284% more cattle yarded, Dalby was up 50%, Wagga 41% and Dubbo 52%. These 4 yards contributed 50% of the EYCI cattle this week, and all except Dubbo saw price falls. Roma was the biggest, losing 39¢/kg cwt as its premium fell to just 4¢ over the general EYCI.

With prices at the biggest yard falling so dramatically, it’s little wonder the EYCI hit a four month low of 524¢/kg cwt (figure 2). The downward trend in prices is a little concerning, but it tends to reflect the lack of rain over a lot of NSW cattle country this summer.

Export markets should have provided some support this week. The 90CL prices in US terms were up 4.5¢ as wet weather in NZ of all place is expected to dampen trim supply. The 90CL indicator in our terms was up 25¢, moving back to 600¢/kg swt for the first time this year (figure 3).

The week ahead

The cyclone forming off the Kimberly could provide a bit of precipitation for some key cattle areas next week, but it doesn’t look widespread enough to cause a serious rally. Probably more consolidation and maybe a return to recent levels.

Some very solid rainfall in Queensland this week, yet this was unable to inspire trade cattle prices there as high throughput weighs on the market. In contrast, NSW and Victoria broadly missed out on any rain yet surprisingly throughput was below average and trade cattle prices firmed.  

Figure 1 highlights the rainfall pattern for the past week, showing good tracts of central Queensland recorded falls in excess of 50mm, but not much in the way for central to southern NSW nor Victoria. NLRS reported state sale yard figures during the week were a bit of a mixed bag, although the Trade Steer category showed some peculiar divergences along the East coast.

Queensland Trade Steers softening 4.6% on the week to sit at 269¢/kg lwt, the worst performing category across the state. While in NSW Trade Steers lifted 5% to 287¢/kg lwt, nearly the best performing category there, only pipped by NSW Restocker Steers – up 5.9% to 309¢/kg lwt.

Further south Victorian Trade Steers fared even better with a 6.3% gain to see them fetching 287¢/kg lwt. Mirroring the NSW experience by only being outdone by Vic Restocker Steers up 8% to 285¢/kg lwt. Given the lack of rain in the south and the expectation that pasture in this area at this time of year not generally at its best you would expect less robust Restocker activity.

Figures 2 and 3 suggest the reasoning behind the opposite price reactions is a question of sale yard throughput with Queensland yardings trekking above average for this time in the year, while Victorian figures are un-seasonally low.

Young cattle prices across the nation a little uninspiring on the with the benchmark Eastern Young Cattle Indicator (EYCI) trekking sideways, up a mere 0.7% to 538¢/kg cwt. Out West the WYCI similarly unresponsive with a meagre 0.5% decline to 570¢/kg cwt.

What does it mean/next week?:

The 90CL frozen cow continue to grind higher (pun intended) with a 1.1% gain to 575¢/kg CIF and reports out of the USA continue to point to robust domestic demand and strong export buying. This should be enough to continue to see the EYCI reasonably well supported in the coming week.

No clear sign of the anticipated wetter February for the South East of the nation at this stage although fingers are crossed Victoria and NSW for a bit of respite as we head towards the end of February as a bit of rain will give cattle prices a further boost.

• South West Victorian Cattle Producers had their best year in 47 years of the Livestock Farm Monitor Project.
• The top 20% of cattle producers in the South West and Gippsland made huge margins.
• Lower prices are likely to see gross margins weaken this year, slowing herd rebuilding.

A couple of weeks ago we took a look at some Victorian benchmarking data outlining the profitability of sheep and wool enterprises.  Cattle producers were also included in the data, and given the high prices we shouldn’t be surprised that they had their best year in the last 47. That makes it two years in a row.

Figure one shows the long term data for South West Victoria, with strong prices seeing 2016-17 eclipsing the 2015-16 numbers by $38/ha.  The extraordinary gross margins of $668/ha were up 6% on last year in real terms, and miles ahead of any other year except for 2010-11.

Other regions showed similar strong performance.  Figure 2 shows that Northern Victoria had a slightly lower cattle gross margin per 100mm of rainfall than the south west, while Gippsland was the best performed, with $90/ha/100mm.

The most striking bar in figure 2 is the performance of the top 20% of cattle producers in Gippsland, they achieved gross margins of $261/ha/100mm.  The top 20% of Western Victorian Cattle producers were no slouches, but were nearly $100 behind Gippsland, at $164/ha/100mm.

Figure 2 also shows us the ‘average’ cattle producers did a bit better than lamb producers in the South West and Gippsland, but marginally worse in Northern Victoria.  The top 20% of cattle producers were streaks ahead of their lamb counterparts in Western Victoria and Gippsland, but in Northern Victoria, they made just $1 more.

Along with high prices, the season was also favourable as it all came together for cattle producers.  However, figure 3 shows that cattle gross margins were maybe not as strong as prices might suggest.  The 2016-17 point is above the trend line, which suggests gross margins should be somewhere near the top 20% in Gippsland.

Cattle producers are likely to have taken the opportunity to spend some money on ‘repairs and maintenance’, increasing variable costs and pulling gross margins lower than where they might be under normal spending patterns.

What does it mean/next week?:

With the fall in cattle prices since last winter, cattle producers are unlikely to continue the run of higher gross margins in 2017-18.  With weaner cattle prices back around the $1000/head mark, gross margins might fall back to $500/ha in South West Victoria.  Still a great margin, just not as good as the last two years.

Expected weakening in cattle margins, and continued strong sheep, lamb and wool prices, will halt any shift back towards cattle which might have been brought on by recent high prices.  At least in the south the herd rebuilt might slow.