Category: Cattle

Key points:

• So far during 2017 heavy steer spreads to the EYCI have been trekking along the lower end of the normal range for East coast cattle.
• The spread pattern in each state has been roughly mirroring the pattern set by the 2011/12 average pattern, the last time we experienced a favourable season along the East coast.
• Young cattle are likely to continue to outperform finished lines for the next six months but the discount spread is likely to narrow as we transition into a drier climate into 2018.

During a favourable season optimism runs high among restockers and opportunistic cattle traders supporting demand and prices for store/young cattle. The added buying competition between the three main purchasing groups (restockers, lot feeders and processors) will often see the Eastern Young Cattle Indicator (EYCI) outperform the price patterns for finished lines, as there is really only one buyer type for fat cattle – the processor. This piece will take a look at what can be expected for the spread pattern between heavy steers and the EYCI along the East coast for the next six months.

The most recent favourable season for cattle traders along the East coast occurred during 2011/12, on the back of widespread rainfall that began in 2010. Each figure accompanying this analysis piece displays the spread pattern for heavy steers compared to the EYCI for 2017 for Queensland, NSW and Victoria. Overlaid with the spread pattern for the current season is the average spread pattern for 2011 and 2012, along with the long term spread pattern and the “normal” range (highlighting where the spread has fluctuated for 70% of the time over the last decade).

Interestingly, so far for the 2017 season the spread pattern in all three states has been following a similar trajectory to the 2011/12 average pattern. In addition, each state’s spread pattern for this season is trending close to the lower end of the 70% banding, reflecting that the favourable conditions have supported young cattle prices more than the price for finished cattle. Perhaps somewhat unsurprisingly the state that was hit hardest by the most recent cattle turnoff, Queensland, is experiencing the widest spread between young and finished cattle as the requirement to rebuild the herd is likely to be most evident in that region.

The Queensland heavy steer to EYCI spread normally experiences a trough during Winter and, based off the current pattern, a widening of the discount spread to 20-25% during the middle of the year would not be out of the question. The NSW heavy steer to EYCI spread is likely to remain fairly stable through the middle of the season, ranging between a 7-12% discount for the next six months. The Victorian heavy steer spread normally follows an opposite pattern to Queensland, on account of the different seasonal factors present in the north/south of the country, and is anticipated to reach a peak during Winter near the 3-5% discount level.

What does this mean?

It is likely the spread patterns for each state will continue to trek along the lower end of the 70% band for much of the second half of the year. However, as the confidence level on longer term climate predictions for the 2018 season grows into the later stages of 2017 spreads may begin to return to more normal levels, particularly if the transition from a wetter to drier climate cycle becomes more evident.

A short week due to the Easter holidays and young cattle prices took a small breather as east coast slaughter figures trek sideways. The Eastern Young Cattle Indicator, marginally softer to close yesterday at 660.75¢/kg cwt, 6¢ softer than this time last week.

Figure 1 shows the pattern for East coast slaughter, with marginal week on week change as just over 112,000 head processed. The Easter dip in slaughter levels seeing numbers processed that were not too dissimilar to this time last season. Although for most of this season slaughter figures have been trending around 10% below the 2016 levels.

Young cattle prices holding above 660¢ for the last week, encouraging an increase in supply with daily yardings creeping up over the last few days to see a 25% increase in daily throughput for EYCI cattle from this time last week with just over 18,000 head reported at east coast saleyards. The first time daily numbers of EYCI cattle have been above 18,000 head since late February. The increased yardings resulting in a slightly softer EYCI this week – figure 2.

The week ahead

A very dry week ahead to much of Queensland and parts of northern NSW will allow for more supply to start to flow once sales begin after the Easter break – figure 3.
Young cattle prices likely to consolidate near current levels with a slightly softer bias in the coming few weeks post Easter. Have a safe and enjoyable break, be sensible on the roads if you are out and about.

Key points:

• Analysis of annual rainfall deciles over the last century shows that the chance of back to back wet seasons lasting longer than two years is uncommon
• The most recent transition from a wetter than normal to a drier than normal period was over the 2011/12 seasons
• The current season is showing some price movement and slaughter pattern similarities to the 2011 and 2012 seasons

The 2016 season was without doubt the wettest for the nation since the 2010/11 deluge and has been the underlying cause of optimism among restockers, encouraging a rebuild of the herd and supporting young cattle prices to record highs. The recent rains have provided a boost to cattle prices over March – but could the prospect of a dry second quarter in 2017 and 50/50 chance of El Nino developing later in the season signal the beginning of the end for further increasing cattle prices?

Analysis of annual rainfall deciles across the nation since 1900 shows that the chance of back to back wetter than average years going beyond a two-year period is fairly rare, with a much drier than normal season often following up within the next two years. Indeed, over the last decade the much wetter 2010/11 seasons were followed up with a rainfall deficient 2013, 2014 and 2015 to much of the east coast, prompting a significant cattle turnoff during that time.

Figures 1 and 2 highlight the price and slaughter patterns comparing the current season to the 2011 and 2012 years. Interestingly, all three seasons have seen price increases for the Eastern Young Cattle Indicator (EYCI) over February/March. While the 2017 rally looks impressive, in percentage terms it is not too dissimilar to the gains recorded during 2011. The EYCI rose 8.2% over February/March 2011 compared to the 8.6% gain seen this year, albeit over a shorter timeframe. In terms of the weekly slaughter pattern there was a bit more volatility in the series during the first half of the year in 2011, although the 2012 pattern has been a reasonably good template for the current season, so far.

The second and third quarter of the 2011 and 2012 season saw young cattle prices ease from their peak in late March, bucking the common seasonal trend towards higher cattle prices during Winter. During the final quarter of 2011 and 2012 the EYCI diverged as the forecast of a very dry 2013 saw cattle slaughter in the final months of the year continue to climb, pressuring prices lower toward the year end.

Figure 3 focuses on data from the last two transitions from a wet to dry period and how the percentage price movement of the EYCI responded over the season. Overlaid on the chart is the percentage price patterns for 2017, 2011, 2012, an average of the 2011 and 2012 pattern and a potential seasonal range (calculated from the most recent five seasons that experienced a shift from wet to dry conditions).

What does this mean?

The analysis suggest that it will be unlikely to see the EYCI peak beyond 10-12% from the season opening price of 635¢’kg cwt, which would place the potential peak this year at 700-715¢. At this stage, the peak is still anticipated during Winter, with prices staging a decline in the final quarter of the year as the prospect of a return to drier conditions prevail. The magnitude of the correction lower for the EYCI is anticipated to be in the 10-15% range scheduled for late 2017 or early 2018, towards the 550-570¢ level.

Due to the Easter break this is the last analysis piece to be released this week. The usual Friday market comments will be released on Thursday – have a safe and happy long weekend.

Cattle markets continued to rise this week as tight supply and improving demand continued.  The Eastern Young Cattle Indicator (EYCI) has streaked to a new 2017 high, and sits 100¢ higher than last year.  Finished cattle prices have participated in the rise, but have been left in the wake of young cattle.

Figure 1 shows that the strong prices failed to draw out more cattle this week, with East Coast cattle yardings increasing just 1,300 head.  Cattle yardings were down 28% on the same week last year.   In fact almost every week of autumn (except for Easter) 2016 saw yardings above 60,000 head.  Over the last 8 weeks cattle yardings haven’t managed to crack 52,000 head.

Most of the action was again in young cattle markets this week.  The EYCI gained 27¢ this week to hit a six month high of 666¢/kg cwt, almost exactly 100¢ higher than last year.  The increase in young cattle prices was largely driven by feeders and restockers.  Queensland feeders gained 15¢/kg lwt, while in NSW they were 9¢ higher, to hit 344¢ and 357¢/kg lwt respectively.

Slaughter cattle prices haven’t managed to hit new 2017 highs yet.  Heavy steers bounced back this week, gaining 27¢ on the east coast to sit just below the opening price of 2017, at 568¢/kg cwt.  It’s s similar story for Cows, with prices sitting a few cents below the February high.

Export prices eased marginally this week, with the 90CL indicator coming off highs, down 4¢ to 614¢/kg swt.  While export prices have improved from the start of the year, if supply picks up here we can expect cattle prices to head back towards export levels.

The week ahead

It will be interesting to see if the rise in the EYCI stops, or at least starts to slow.  It’s hard to see any increases in supply, as it seems the cattle either aren’t there, or are unable to make it to market.

The concern for buyers is if supplies are tight now, it’s a long time until September when the spring supply hits the market.  There might be a flush when the floods recede, but it’s likely to be short-lived.

Key points:

• The percentage of purchases of young cattle being bought by restockers is outstripping both feed lots and processors.
• Nominal volumes of young cattle being sold to restockers in Northern and Southern saleyards are also above longer term averages this season.
• Price spread patterns show that Southern restockers are more optimistic than their Northern counterparts.

Anecdotal reports of revived restocker activity within the young cattle market suggest that recent rainfall may have given a boost to prices along the Eastern seaboard. But does the underlying data for the Eastern Young Cattle Indicator (EYCI) show this to be the case and if so, is it evenly spread across the Eastern states? Is just a simple glance at the broad restocker activity all that is needed to give a robust picture of the market or is it central to beef analysis to delve a bit deeper into the figures?

Certainly recent discussions with livestock agents reveal that restocker activity in their area is on the rise and a Meat and Livestock Australia news report from last week somewhat confirmed the trend. Indeed, as figure 1 highlights, the percentage of EYCI stock sold to restockers as a proportion of total EYCI sales for the 2017 season has been on a fairly clear upward trajectory. Although looking at restocker purchases in terms of percent of supply doesn’t necessarily indicate increased nominal volumes are being purchased by restockers, but that the proportion of restocker purchases is higher when compared to cattle purchased by feed lots and processors.

Using the underlying EYCI data we are also able to filter and analyse specific components of the broader EYCI market to determine if the robust restocker demand this season is stemming from a particular region. Separating EYCI restocker purchases into northern and southern saleyard groups, with Dubbo saleyard marking the mid-way point between North and South, we can assess how evenly distributed the restocker activity is along the East coast.

During February the volume of cattle purchased by restockers at Northern sale yards on a weekly basis peaked near 7,000 head (double the volumes of the ten-year average during this time frame, but similar to levels seen during last season). Restockers in Southern sale yards have seen weekly volumes peaking at around 1,200 head during March, which is nearly 2.5 times the volumes normally seen at this time of year – according to the pattern set by the ten-year average (Figure 2).

Taking a look at the price spread patterns for Southern and Northern sale yards we can see that there are some stark differences between restocker activity in each region. Figure 3 shows that Southern restockers have been happy to pay a premium spread above the EYCI trending along the top of the normal seasonal range and peaking last week at 8%, equivalent to 687¢/kg cwt. In contrast, Northern restockers are paying a premium spread in the lower end of the normal range and below the seasonal average level for this time of year at 2%, equivalent to 649¢/kg cwt – figure 4.

What does this mean?

The above average volumes of cattle being purchased by restockers in both the North and South certainly shows the intention to rebuild the herd is evident across the Eastern seaboard. Although, considering the magnitude of destocking experienced in the North during the large turnoff during the 2013-2014 seasons the current volume of cattle going to restockers in Northern saleyards isn’t much dissimilar to levels seen last season.

In addition, the spread pattern of the North and South indicate that Southern restockers are more optimistic of the current season or are experiencing somewhat better seasonal conditions than their Northern counterparts, as signalled by intentions to pay much more above the EYCI than normal for this time of year.

Increased throughput across the Eastern states this week, although the rise in Queensland’s yarding numbers not as strong as the Southern states, with added difficulty in transporting stock and saleyard closures due to the extreme weather having an impact. Despite the stronger supply prices generally higher for most categories of cattle apart from heavy steers as widespread rain helps to boost demand.

Figure 1 highlights the rainfall pattern across the nation this week with the impact of cyclone Debbie clearly evident. Rainfall further south also present and helping to lift restocker spirits in the southern regions as outlined in the analysis piece released yesterday by Mecardo.

East coast yardings up 17.5% on the week to just shy of 45,000 head – figure 2. Queensland throughput at similar levels to the East Coast weekly gains, up 17.2%. Overshadowed by the leap in yardings from NSW though, with a 28% lift in throughput there unable to dampen prices too much.

The national cattle indicators mostly higher this week with 2-4% gains recorded for all categories except heavy steers. The national heavy steer indicator dropping 3.4% on the week to close at 294¢/kg lwt. The Eastern Young Cattle Indicator (EYCI) mirroring the broader market up 4.4% on the week to close at 649.75¢/kg cwt. Young cattle prices continuing to find support from restocker buying and the added benefit of higher beef export prices, with the 90CL frozen cow up slightly – figure 3.

The week ahead

The prospect of added cattle throughput pre the Easter break now that the inclement weather has begun to settle down could see prices consolidate or slightly soften in the coming few weeks, before trekking higher again post Easter.

If you read agricultural news websites, or even listen to the ABC’s country hour, you will be aware of the beef ‘scandal’, which has hit Brazil this week.  The reasons behind the scandal have been well documented, so we won’t repeat them here.  What we will do is look at what a suspension of Brazilian imports might mean for Australian beef exports.

The key outcome of the ‘Brazilian Beef Scandal’ thus far is China and Hong Kong suspending beef imports from Brazil. Figure 1 shows that Hong Kong and China were two of the three biggest markets for Brazilian beef in 2016, accounting for 29% of total exports.

The current suspension of the China/Brazil beef trade will obviously mean that a lot of Brazilian beef will have to find a new home.  But how much of a hole does it leave in China’s beef supply?  In 2016 Brazil was the largest source of China’s beef imports, accounting for 29%.

If the suspension continues for any significant amount of time, China will be looking to replace Brazilian beef from its other current beef sources, the main ones being Uruguay, Australia and New Zealand.

Assuming the Chinese suspension of Brazilian beef lasts a month, China and Hong Kong will have to import around 29,000 tonnes of beef from somewhere else, if it is to maintain supply.  If Australia provides a third of this tonnage, it will double our average beef exports to China (figure 2).

In reality, Uruguay and New Zealand are not really in a position to increase exports to China.  Figure 3 shows the Uruguay and New Zealand have much smaller export programs than Australia and Brazil.

India can fill some of the void through the ‘grey channel’, but Australia is in a good position to replace Brazilian beef in higher value markets.

Obviously if Australia was to in part fill the Chinese gap, it would have to be diverted from other markets, which would force them into a sort of bidding war with the Chinese, pushing up export prices.

 

Key points:

• The Brazilian beef scandal has seen China suspend imports of beef from Brazil.
• Australia is in a good position to replace some Brazilian beef in China, pushing up export prices.
• If the suspension on Brazilian beef lasts some time, improved export demand should provide strong support for Australian slaughter cattle prices.

What does this mean?

For a country with such a large export program, being suspended from your biggest market is going to be disastrous for beef and cattle prices.  In Australia it would be similar to the US or Japan banning our beef, and we then either need to increase domestic consumption or find another market.  Prices would fall very, very quickly.

As with any trade restrictions, the bad news for Brazil could be good news for Australian cattle producers and processors.  Increased demand from China will push export prices higher, and given the continued tight supply of cattle, much of this would be passed onto producers.

However, China are not likely to want big increases in beef prices locally, and as such are likely to be working with Brazil to sort out issues.  As such there is no way of knowing how long the suspension will last.

Broadly stable national markets evident this week for most categories of cattle as a combination of lower throughput and slightly higher beef export prices put a base under the market. National trade steers the leader, given a boost by the southern states to post a 4.1% gain to 340¢/kg lwt. In contrast, heavy steers the laggard to see it down 2% to 288¢/kg lwt on some softer Queensland prices.

Figure 1 shows the east coast throughput tracking lower again on the week, despite a lift in Queensland yarding numbers, as the southern states start to restrict supply. The 43,900 head reported marginally softer than last week, but quite a bit lower than the same time in 2016 when just over 64,000 head were going through the east coast sale yards.

State cattle indicators mostly flat to slightly softer, although medium cow in SA and Tasmania taking a reasonable hit to see 24.2% (172¢’kg lwt) and 8.6% (201¢/kg lwt) declines, respectively. Victorian trade steers the top performer at the saleyards this week, up 4.8% to 334¢/kg lwt.

Western prices softer across the board with pastoral cows mirroring the SA medium cow falls, down 25.5% to 168¢/kg, while the Western Young Cattle Indicator (WYCI) only marginally lower to 682¢/kg –  a 2.3% drop on the week. The Eastern Young Cattle Indicator (EYCI) reasonably stable, with only a 0.5% decline to close at 611¢, exactly where the 90CL beef export prices managed to finish the week – figure 2.

The week ahead

The 90CL on a par with the EYCI and the weekly rainfall forecast (Figure 3) showing some reasonable falls ranging between 10-50mm to much of the eastern seaboard should continue to underpin cattle prices. It may even encourage a further lift in the southern states as producers take solace from cooler temperatures as the Autumn starts to show its face.