Category: Cattle

Weekly supply statistics showed a fairly normal pattern for the start of the season, with East coast figures hovering near to the longer term seasonal averages. Although Queensland and NSW throughput were slightly elevated for this time in the year as the Northern wet season continues to be delayed, weighing on prices.

A fancy animated chart shows the lack of rainfall that has impacted Queensland and NSW producers over the last fortnight, with higher than average weekly cattle throughput figures in these two regions noted as the dry conditions encourage supply.

Indeed, weekly cattle throughput in Queensland is running nearly 30% higher than the five-year average for this time in the season and NSW throughput isn’t far behind, with 11% higher yarding levels.

However, lower than usual throughput in the remaining East coast states has seen the total East coast throughput sit nearer to the average seasonal levels, according to the five-year average pattern, with just over 59,000 head recorded this week – figure 1.

Weekly East coast slaughter volumes remains close to normal, 3% higher than this week in 2016 and 4.5% below the five-year average seasonal pattern – figure 2.

What does it mean/next week?:

The benchmark Eastern Young Cattle Indicator (EYCI) off 3.8% to 531.25¢/kg cwt in a move broadly mirrored by the national sale yard indicators last week. Heavy steers registering a 3.1% drop to 255.2¢/kg lwt. Restocker Steers one of the few categories to score a gain, up 2.2% to close at 334¢/kg lwt.

A bit surprising to see Restocker steers performing so well given the recent lack of Northern rain. Looking to the forecast Central Queensland not expected to get much moisture into the week ahead so don’t expect young cattle prices to rebound too much in the short term.

Charts:

Rainfall animation to be included as first graphic (file saved in Mecardo/charts directory see link)

A truck driver asked me when we were going to sell some heavy steers that we have wandering around on some still green country. My flippant response was, ‘when it rains in Queensland and the price goes up’. I then thought I’d better do the numbers and make sure this was a better than 50/50 chance of happening.

Cattle prices have been waning early in 2018. Little to no rainfall in some key northern cattle areas since before Christmas, cattle supply has opened up relatively strong, and demand from restockers weak.

The latest Bureau of Meteorology (BOM) shows a good chance of above median rainfall over the next three months. But what does this mean? Another map produced by the BOM is shown in figure 1 which gives more of an idea of how much rain an area might expect in February.

Much of Northern NSW and Queensland have a 50% chance of receiving more than 50mm of rain. Even better, there is a 25% chance of most of Queensland getting 100mm or more. The last time we saw good early year rain was in 2015, and figure 2 shows what that did to heavy steer prices.

The situation is a little different now. Back in early 2015 cattle in Australia were heavily under-priced compared to the export market. At the moment cattle prices are close to fair value relative to export prices.  However, as we saw this time last year, tight supply can see cattle values well above where export prices suggest they should be.

Whether supply will tighten is a tricky one. We know there is a lot of cattle on feed bolstering finished cattle numbers, but many of these cattle would have been drawn from a pool which is normally finished on grass. Figure 3 shows that spring slaughter in 2017 was higher than 2016, but that could have also been catching up from weak autumn slaughter (figure 3).

It’s hard to see cattle slaughter being any weaker than 2017 in the early part of the year, but it doesn’t need to be to see prices rise. East coast slaughter around 130,000-140,000 head per week should be enough to push prices higher.

Key points:

• The BOM are forecasting a good chance of better than median rainfall in Northern NSW and Queensland from February to April.
• Historically cattle prices track sideways to higher early in the year, with good rains giving a boost to the upside.
• Cattle supply is likely to be stronger than 2017 early this year, but prices could still push higher.

What does this mean?

While rain doesn’t limit the number of heavy slaughter cattle which will come to market, it can see the supply of young cattle and cows tighten, which increases demand for cattle which can fill slaughter space. Hence heavy cattle prices can rise with rainfall.

Without significant rainfall, all cattle prices are likely to continue to drift lower, and consistent supply is net with easing restocker demand. This results in processors facing less competition for all cattle, and lower prices.

The majority of saleyards have reopened now to start the 2018 season and while there is limited reporting of state by state cattle categories undertaken by Meat and Livestock Australia this week there is enough in the major saleyard reports to kick off the Friday market comments for the new year.

Most MLA saleyard reports indicate that young cattle were the dominant volume with lotfeeder and restocker activity fairly prevalent. Many saleyards did not have the full compliment of processor and export buyers in attendance and both quality of stock present and price movement reported as being fairly mixed.

A look at the national price results for the week, compared to last years closing prices and the change from opening prices in January 2017 are displayed in Table 1. The mixed price results from the sale yard reports are reflected in the price movements from last year’s close to this week’s opening prices with the EYCI slightly softer at 562.75¢/kg cwt, a decline of 1.2%. Trade, Medium, Heavy and Feeder steers have all lifted, with Trade Steers leading the gains – up 3.8% from the December close. National Medium Cows the clear laggard posting a 4.7% drop to close this week at 202.6¢/kg lwt.

The Bureau of Meteorology (BOM) are now updating their three-month outlook twice a month with the “first look” being released yesterday for the February to April period. The weak La Nina and recent warm waters around much of the nation responsible for anticipated increased moisture to much of the West and parts of the far North and mid-East for the February period – figure 1.

EYCI, 90CL and WYCI markets now back in sync after wide variation in prices from this time last year – figure 2. Indeed, these three markets are now within 15¢ of each other compared to January 2017 were the price variance between the three categories was in excess of 100¢, with the 90CL heavily discounted at the time.

The week ahead

Table 1 highlights that the cattle market has opened the 2018 season slightly weaker compared to last season, although not significantly so, with the EYCI 12% lower and Heavy Steers off 13%. Historically, the performance of the cattle market over January can be a good predictor to how the season fares over the year and early signs point to a relatively stable, albeit mixed start.

The prospect of some decent rainfall into February may lend some support into the later part of January but there are some dark clouds in the form of a higher A$ and the likelihood of softening beef export prices that could keep any significant gains under wraps.

Cattle sales were thin and far between this week, with only a few saleyards operating.  The Thomas Foods International (TFI) fire won’t have as big an impact on cattle as it will on sheep, but we’ve already seen reports of weaker prices in the face of the uncertainty.

According to a report in ‘The Land’ last November TFI kill around 5,000 head of cattle per week at Murray Bridge. While this is a very large, 65-70% of MLA’s reported weekly kill for South Australia (figure 1), it accounts for just under 4% of east coast slaughter (figure 2).

With total slaughter back so far from the highs of the first half of 2016, TFI are likely to get their cattle slaughtered elsewhere to continue to supply customers. Basically, it seems unlikely that the cattle which now can’t be killed at TFI are going to flood into other markets and depress prices in general.

For those selling cattle at weaner sales in SA and Victoria the timing of the fire is not great. Uncertainty has been blamed in one report for weaners making 10-20¢ less than pre-Christmas sales. Still, prices of 300-335¢/kg cwt for 350kg calves is still good money.

While there has been a bit of rain about over the break, it wasn’t enough to see a lift in the couple of prime markets which were held this week. Casino and Dubbo both quoted prices down around 10¢/kg lwt across the board, but numbers were very limited.

The week ahead

There’s not a lot of rain on the forecast, and the Australian dollar has been rising, back up to 78¢. Both these fundamentals are bad news for cattle prices, as is the uncertainty created by the TFI fire. For better news, we can look to export markets, where demand traditionally picks up a bit in January, but this may take a few weeks to filter through.

December wasn’t a great month for cattle feeders. After a brief reprieve at the start of the month, rising input costs coincided with falling finished cattle prices to see another intense squeeze on margins. Tightening lotfeeder margins are not good news for those producing young cattle either, and for this, the first cattle article of 2018, we’ll see if we can find any respite in the coming months.

Figure 1 shows the main problem for cattle lotfeeders and the cattle market in general. After a small, and short-lived, bounce back to the 520¢ level in late November, the Queensland 100 day Grainfed Steer price has resumed its downward trend, finishing the 2017 at 507¢/kg cwt.

The Grainfed Cattle price is not only close to a 3 year low, it’s 7.5%, or 40¢ lower than this time last year.  For a 340kg lwt steer, the lower price means lotfeeders are receiving $136/hd less than this time last year.  The quarterly feedlot survey gives a pretty good idea as to why grainfed cattle prices are weaker. With still over 1 million head of cattle on feed at the end of September, supply is strong and consistent. There is little scope for lotfeeders to hold back supply in order to support prices.

On the input side, lotfeeders are seeing little in the way of positive news. The spike in fed cattle values in late November saw feeder values also jump. The shortfed feeder lifted 19¢ from October lows, to hit 302¢/kg lwt. It has since lost 6¢, but remains relatively strong.

Medium fed feeders have performed similarly, but have held their price at the top, finishing 2017 at 320¢/kg lwt. This, along with the falling grainfed prices, pushed margins for Riverina lotfeeders into negative territory in early December. A fall in feed grain prices due to some harvest pressure saw gross margins back at $20 per head (figure 2) late in December, but this is still a long way from turning a profit after overheads.

There might be a little positive news on the horizon for lotfeeders. On average Grainfed Steer prices rally 4% in January (figure 3) as Japanese demand ramps up. We haven’t really seen this in the last two years, as prices have eased from highs, but given we’re starting at a 3 year low, there is some scope for higher values.

Key points:

• Lotfeeder margins finished 2017 at weak levels as Grainfed cattle prices were close to a 3 year low.
• Feeder values held on to their early December levels, but will come under pressure.
• There is some scope for a price rally in January, but grainfed cattle supplies will remain strong.

What does this mean?

Weak lotfeeder margins are not great news for the weaners which are about to be sold in Victoria.  Lotfeeders often place a floor in the market for heavier weaners, and this year their prices are likely to sway some way from last year’s values.

Low grainfed cattle prices are similarly depressing for grassfed cattle values. While there might be some sort of lift with tightening grassfed supplies in January, its likely prices will remain well below last year’s levels, unless we see a strong lift in export prices.

It was another poor week for beef export values, and cattle prices reacted accordingly.  As we reach the end of the year attention will turn to weaner sales in Victoria, with the main fundamental which will swing the market being rain in Queensland.

In some way we seem to have seen demand for cattle shift to sheep and lamb markets.  Cattle supply is down, yet prices are weaker.  In sheep and lamb markets, prices are higher, yet supply is stronger.  An interesting conundrum.

Weaker cattle yardings (figure 1) couldn’t provide support to cattle markets this week.  East Coast yardings fell 12% back to a one month low and below the same time last year.

Yet the weaker supply was met with weaker demand.  The EYCI lost 9¢ to 569¢/kg cwt, but it was really only young cattle which weakened.  Trade and Heavy Steers, and Cows all remained relatively steady on a national basis.

If we look at prices relative to this time last year, it is Cow which are performing the best.  The East Coast Medium Cow Indicator is 6% below this time in 2016, while the EYCI and Heavy Steers are both 9% lower.

The Western Young Cattle Indicator was the star performer of the week.  The WYCI gained 39¢ to 591¢/kg cwt.  A solid rise, yet the WYCI was only making up ground lost last week, and remains 10% below the same time last year.

The week ahead

Figure 2 shows the easing 90CL indicator, which now sits around the same level as the EYCI and the WYCI.  Export markets generally ease as we move into the end of the year, but often recover in January.  There is a reasonable chance the export market will provide some support in the New Year.

As mentioned at the start of this article, it’s Queensland and Northern NSW rain which is going to provide the real upside.

While lamb and sheep prices have reacted to the rain in Victoria and New South Wales, the heavy falls didn’t make it to Northern NSW and Queensland. As a lot of cattle come out of this area at this time of year, national indicators were stagnant.

Eastern Young Cattle Indicator (EYCI) yardings did fall away from the 7 month highs of last week, but remained relatively strong (figure 1). Seemingly demand was a little weaker. The EYCI tracked sideways, finishing Thursday at 579.25¢/kg cwt, and has now spent 6 weeks around this level.

It’s probably not surprising, but the major mover in cattle markets this week was the Victorian Restocker Indicator (VRI). The VRI rallied 36¢, or 12% to 305¢/kg lwt, but remains well behind it’s Queensland and NSW counterparts, which sit at 359 and 328¢ respectively.

We thought the rain might cause some transport disruptions, and hence stronger prices for slaughter cattle.  But like the EYCI, slaughter cattle values were largely steady, or even lower in some cases. Trade steers seemed to be the hardest hit.

Export beef prices also eased this week, which might explain some of the lower slaughter cattle values.  The 90CL Frozen Cow Indicator fell 17¢ (figure 3), or 2.5% to a 6-week low of 592¢/kg swt on the back of weaker demand from the US. There are also reports New Zealand cattle slaughter is ramping up, which it does seasonally, and increases supplies of lean beef.

The week ahead

With just two weeks to go until the Christmas break, it seems cattle prices are set to track sideways into the end of the year. We won’t have wait long after that for a significant move in cattle prices, as we generally get one over the Christmas break.  A good rain in Queensland can kick prices higher, and dry weather might see prices ease.

Forecast rain in the South-East corner of near biblical proportions for the week ahead keeps restocker interest high at the saleyard and young cattle prices across the country firm slightly in response.

Figure 1 highlights the anticipated rain event, with falls noted into the 200-300 mm level in Northern Victoria and falls of at least 50mm to much of Victoria and NSW. While its not great for many out there trying to complete this season’s harvest it’s a boost to backgrounders, with the high moisture and warm weather giving a lift to pasture growth in the coming weeks.

Indeed, spirits of restockers across the east coast have been encouraged and this has played out in restockers continuing to pay above average premiums at the saleyard for young cattle. The East coast restocker spread pattern showing that they are happy to pay over 6% more than the headline EYCI to secure stock – figure 2.

In an analysis piece released on Mecardo last month the main driver for the increased restocker spread was coming from Northern restockers. However, in recent weeks the Southern restocker premium has lifted too with premiums over the EYCI of 4-5% noted during November being paid, reflecting the growing optimism for a good Summer grazing potential as we head toward the end of the year.

The EYCI finished the week up 2.5¢ to 579.75¢ and the Western Young Cattle Indicator (WYCI) was also higher, lifting 13¢ to 585¢. This was despite the 90CL Frozen Cow easing slightly to close at 609¢/kg CIF – figure 3.

The week ahead

Its hard to see young cattle prices ease into the coming week with the amount of moisture that is forecast. Producers know its going to translate into decent pasture and they hate seeing grass going uneaten when they know cattle could be getting fat on it.

Make sure you stay safe out there this weekend and remember – don’t drive through flood waters. Oh, and spare a thought for the frantic lot trying to get as much harvested before the deluge.