Category: Cattle

Meat and Livestock Australia (MLA) seem to have sorted out the differences with processors who were holding back data slaughter data.  For the last couple of week’s slaughter data has confirmed what we thought, cattle supply has been tight.

Figure 1 shows east coast cattle slaughter jumping higher in the week ending the 17^th November.  This was largely thanks to Queensland, but slaughter rates moved higher in Victoria and NSW as well.  East coast cattle slaughter last week sat just 3% below the same time last year (figure 1).

Slaughter cattle prices remained relatively steady this week, maybe due to the sharp jump higher in 90CL export prices.  The 90CL Frozen Cow gained 18¢ to hit a five month high of 618¢/kg swt (figure 2).  Driving export prices higher has been limited supplies from Australia and New Zealand, along with a weakening Aussie dollar.

The 90CL export prices is now nearly 7% higher than this time last year.  So if export prices are higher than last year, and cattle slaughter lower, prices should be higher, right?  Well no, figure 3 shows the Queensland Heavy Steer Indicator has improved, but it’s near the same price as last year.

As we noted earlier in the week, cattle supplies out of feedlots appears to be keeping a lid on cattle price rises, although the latest jump in export prices could see prices creep a bit higher.

In the west young cattle prices are basically the same as those in the east.  Normally WA cattle prices start to head towards lows at this time of year, but limited supplies continues to support values.

The week ahead

The good wet season is set to continue for Northern NSW cattle producers, with 50-100mm forecast for next week.  This bodes well for young cattle prices to at least hold current levels, and possibly improve.  Finished cattle could see some benefit as well, but processors will have to want to push slaughter above last year’s levels.  The weakening Aussie dollar should help on this front.

The South Australian Greens have extended the moratorium on GM in their state and over the past few weeks the mob at Mecardo have been investigating the claim made by the Greens that the GM ban, and their clean, environmentally sustainable image, provides a price premium benefit to SA producers. There has not been any sign of a premium on Canola, nor in mutton and lamb. This time we try to find it in cattle.

In order to determine if a premium exists for SA producers we need to be able to compare markets that are interdependent and share a degree of correlation in price movement to ensure that we are measuring like for like. We have run a series of correlation analysis over historic cattle price movements contrasting SA to other states and a variety of cattle categories and have selected to compare SA to Victorian Trade Steers.

On an annual basis, the returns correlation between SA and Vic Trade Steers shows a very strong interdependence scoring an r² of 0.9405 – Figure 1. This means that nearly all of the time the annual price movement in SA Trade Steers and Victorian Trade Steers follow each other.

Figure 2 highlights the average monthly price achieved by SA and Victorian Trade Steer producers at the saleyard according to the weekly MLA reported statistics. A cursory glance at the chart illustrates two fairly obvious characteristics of the two price patterns; namely, that the prices of SA and Vic Trade Steers share a close interdependence and that SA prices usually run at a discount to Victorian prices.

An overview of the historic percentage spread between SA and Victorian Trade Steer monthly average prices from 1998 to 2017, as outlined in Figure 3, demonstrates how few times SA producers have enjoyed a premium over their Victorian counterparts. Indeed, there have only been four brief periods over the last two decades when SA Trade Steers achieved a premium over Victorian Trade Steers on a monthly basis – as identified by the blue circles.

Analysis of the monthly spread data shows that Victorian Trade Steers have posted a long run average premium of 8.3% over SA Trade Steers (black dotted line) and the orange spread trendline shows that over the last two decades the premium spread in favour of Victoria has actually been expanding, as denoted by the upward slope to the trendline.

Related GM articles

Sheep and lamb analysis

Canola analysis

Key points:

• Correlation analysis shows that SA Trade Steer and Victorian Trade Steer markets share a strong degree of price interdependence on an annual basis
• Average monthly price data confirms the strength of the relationship between Victorian and SA Trade steer prices and also shows that SA Trade Steer prices run at a discount to Victoria
• Percentage spread analysis demonstrates that Victorian Trade Steer average monthly prices have achieved a long-term average premium in excess of 8% over their SA counterparts and the spread has widened in recent times.

What does this mean?

The Mecardo team have undertaken analysis across a variety of crop and livestock prices comparing the historic spread of the SA prices to comparable markets in other states and we have yet to find any evidence in support of the SA Greens claims that the moratorium on GM provides a significant price premium for their producers compared to producers from outside of SA.

Indeed, the evidence for cattle suggests otherwise. The long-term average spread for Victorian to SA Trade Steers from 198 to 2017 sits at 8.3% premium. However, measuring the average spread from 2008 to 2017, which encapsulates the period that the GM moratorium has been in effect, shows that the premium spread has widened to 9.1% in favour of Victorian producers.

The cattle market stalled for young cattle this week as more rain fell in part of NSW and Queensland, but supply managed to improve.  While young cattle supply was a little stronger, this didn’t stop some solid rises in some interesting indicators.

We are still coming to grips with Meat and Livestock Australia’s new weekly stats, which come out on a Wednesday, with supply data to last Friday. For yardings figures we find it a little hard to match prices with supply, as we are running about 4 sale days behind.

Anyway, what we do know is that young cattle supply in Eastern Young Cattle Indicator (EYCI) saleyards was up 8% in the week to Thursday (figure 1), and this halted the rise in the price, as it stalled at 578¢/kg cwt. In fact, EYCI yardings hit their highest level in 8 weeks. While the EYCI eased marginally, it remains close to its highest level in 15 weeks.

The Queensland Cattle Market Index has been catching our eye, it hit 307.6 points this week. Heavy steers helped to drive the QCMI, as prices rallied 50¢ in the past two weeks to hit a 19 week high of 531¢/kg cwt.

Figure 2 shows that Queensland Heavy Cattle are not far off the price of this time last year, and they are the most expensive heavy cattle in the country. The Queensland 100 day grainfed steer over the hooks indicator ticked 3¢ higher this week, but is languishing behind at 507¢/kg cwt.

The week ahead

It looks like it’s going to be relatively dry for the coming week, on the east coast at least, which might see prices track sideways. There is a little upside left in the slaughter cattle market if export prices remain good, but young cattle markets might find it a little harder to keep rallying without more rain.

Analysis of the underlying saleyard data that is used to create the Eastern Young Cattle Indicator (EYCI) shows that optimism of restockers has been increasing during October as they appear more prepared to pay a premium to secure young cattle. This piece delves a bit deeper into the figures to see if the renewed restocker interest is part of the normal seasonal cycle or if there is something more behind it.

Figure 1 shows the historic movement in the restocker spread to the EYCI, with a lift in the premium percentage spread over October clearly evident. This effectively means that restocker buyers at the saleyard have been prepared to pay more to secure young cattle as the month progressed, indicative of increased buying confidence.

Indeed, the restocker spread has now broken above the 70% range banding for the first time since 2016 and currently sits at levels that have been characteristic of herd rebuild phases in the recent past, such as during 2011 and the 2005 seasons – as identified by the blue circles.

A further breakdown of the restocker figures into the southern and northern regions, with Dubbo as the halfway point, shows a distinct difference in the buying behaviour of northern and southern restockers, even after accounting for the normal seasonal differences in restocker spread activity.

Figure 2 outlines the restocker spread to the EYCI, filtered for southern buyers. Although there has been an increase in the spread from a discount to a premium over October it is still moving broadly in line with the normal seasonal pattern, as identified by the long-term average trend line and currently sits at a 1.4% premium to the EYCI.

In contrast, a look at the northern restocker spread activity over the season shows a significant improvement in the restocker spread during the September/October period. While it is not uncommon to see the northern restocker premium spread to the EYCI widen in the second half of the season the magnitude of the widening, particularly during October has been impressive when compared to the 2016 and longer term average seasonal pattern – figure 3.

Indeed, at a current premium spread of 8.6% the northern restocker spread is one and a half times the seasonal average and has broken above the usual range that is common for this time in the year, as identified by the 70% banding.

See related articles – July Restocker analysis & September Restocker analysis

What does this mean?

The July restocker analysis (see link above) suggested, the dry spell in Winter would see the restocker premium spread to the EYCI fall back to zero, in both the north and south – which occurred during September.

An updated forecast from the Bureau of Meteorology (BOM) pointing to the chance of a La Nina developing into late 2017/early 2018 has prompted the activation of a La Nina watch on the BOM website. The last La Nina event was recorded during the 2010/11 season which coincided with a herd rebuild phase that saw herd numbers rise 6.6% in 2011.

Clearly, the recent northern rains (with areas around Bundaberg reportedly getting up to seven times their monthly average rainfall during October) and the increased chance of a La Nina event on the cards have given northern restockers the confidence boost needed to get them back into the young cattle market in a big way. Let’s see how long it can last.

The Eastern Young Cattle Indicator (EYCI) lifted again this week, recovering a further 3% to see it close at 558.50¢/kg cwt with some good rainfall to much of Queensland providing a bit of a boost. Gains noted too across the East coast for Heavy and Feeder Steers, up 1-2% to round out a reasonably firm performance for cattle markets.

Table 1 outlines the week on week and year on year performance for a selection of cattle prices as at this weeks close, with marginal weekly falls noted for Trade and Medium Steers. Interestingly, a comparison of young cattle prices to finished steers from this time last year shows that the EYCI currently sits 17.8% below where is was last season, while Heavy Steers are just 10.6% softer.

It points to how much optimism was sapped out of restocker buying activity during the Winter dry spell, but that may change if the northern rains continue and NSW starts to get a bit of decent rainfall too. Figure 2 shows the national rain tally over the last week with Queensland the clear beneficiary and next week’s forecast calls for a continuation across much of the north and spreading into NSW which should continue to support demand for young cattle by restockers.

Indeed, our analysis piece released earlier this week took a look at how the October rains may assist prices for the remainder of the year, in a similar fashion to the 2011 season. Click here to recap on the report.

Additional support for young cattle prices is likely to come from a narrowing of the current discount spread of the EYCI to the 90CL beef export price. Given the tightness of supply experienced this year the spread discount wouldn’t be expected to widen much further from current levels – figure 3.

The week ahead

After a recent lift the 90CL is knocking on the door of 600¢/kg CIF again and with the Bureau forecast of a fairly normal November rainfall pattern and a good chance of a slightly wetter than average December all indications are for continued support for young cattle prices in the coming weeks.