Cattle markets found a little support this week, with the Eastern Young Cattle Indicator (EYCI) finishing relatively steady. Weaker yardings and marginally stronger export prices provided some support.
East Coast cattle yardings fell to 6 week lows this week, as lower prices deterred growers from sending cattle to the yards. Figure 1 shows that yardings this week were down 10% for the week, and 23% on the same time last year. With the public holiday next week in Victoria, yardings are likely to be lower again.
Despite the steady EYCI, which this week sits at 614.25¢/kg cwt, there were some big market movements. In Queensland Trade Steers fell 70¢ to 490¢/kg cwt. In NSW Trade Steers were up 14¢ to 624¢/kg cwt. We won’t see a 134¢ spread between cattle in NSW and Queensland for long, with the rest of the market suggesting the price should meet somewhere around 550-600¢ level.
Not helping the market at the moment is the sharp fall in Grainfed cattle prices. Figure 2 shows the Queensland Over the Hooks 100 day Grainfed steer, and it’s not pretty. Since the start of the year 100 day Grainfed cattle prices have fallen consistently, and have now lost 40¢, or 7%, to sit at a 10 month low of 530¢/kg cwt.
We’ll have more on how this might impact young cattle markets in our analysis next week.
In the West the rain and dearth of supply has the market sitting well above the east coast. While there were no quotes from saleyards, over the hooks yearling cattle remain in the 580-630¢ range.
The week ahead
There is a bit of rain on the forecast for the coming week, especially for south east Queensland and northern NSW. A bit of rain should support cattle prices for a little while, but there should be a strong supply of young cattle, and slaughter cattle, in April and May. This usually pushes prices in the north lower, and given southern prices remain at a good premium, they should be dragged lower as well.
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Just as spring price peaks lasted a lot longer in 2016, the autumn price decline appears to be coming early in 2017. While finished cattle prices were relatively steady this week, waning restocker demand appears to be seeing young cattle prices continue easing.
Young cattle still have some way to fall before they are back in line with ‘normal’ discounts to the EYCI. Figure 2 shows that despite the fall in the EYCI, Heavy steers remain at a 15% discount to the EYCI, while Cows are at a 25% discount. Heavy slaughter cattle discounts have narrowed marginally from two and five year lows, but are still a long way from their long term averages.
Frequent readers of Mecardo will not find it surprising that long-term annual average local cattle prices have a strong correlation to annual average US prices. This analysis takes a look at the US cattle cycle patterns since 1920 to get a perspective of what the normal cycle looks like, where we are currently in the cycle and the usual price activity during herd growth and herd decline.
Given the average cycle lasts ten years and the near 50/50 split between herd rebuild to herd decline during the cycle we took a look at annual price percentage changes during the first five years of each cycle (the herd rebuild) and the final five years of each cycle (the herd decline). Figure 2 shows the annual price change pattern for the first five years of the cycle. Interestingly, the data since 1920 demonstrates that the average price gain pattern for the first five years is reasonably smooth and tends toward 0% price movement, yet can fluctuate plus or minus 15% throughout the period. It suggests that there is a reasonably even chance of price gains or falls of a 15% magnitude during the herd rebuild phase of the US cycle – almost like a toss of a coin.
Given where we sit in the current cycle there is the potential for another 2-3 years of further gains to US herd size, albeit at a diminishing rate. Herd decline is expected to start around the end of decade and is likely to see cattle price supported in the US from 2020 onwards.
Much of NSW and south-east Queensland has received less than 30mm of rain this week and the drier/hotter than normal spell since the start of the year in the north, combined with the much drier than usual March to May rainfall outlook (recently released from the Bureau), seems to have brought forward some supply with Queensland slaughter levels still tracking higher this week weighing on the broader market.
The northern price declines weighing on the Eastern Young Cattle Indicator (EYCI) to see it drift to lows not seen since June 2016 to close the week down 2.4% to 621.75¢/kg cwt – figure 3.
Figure 1 shows the January 2017 five year price rank for a range of broad acre (plus cotton) commodities grown in Australia. The price rank is looked at in Australian dollar terms, as farmers here in Australia see the prices.Basically the news is all good for livestock products (wool and meat) with the exception of crossbred wool (represented here by the 28 MPG). Five year price ranks are all in the top decile, meaning they have traded at lower levels for 90% of more of the past five years. Cotton also is trading in the top decile. At the other end of the scale lie canola, wheat and barley, with canola performing reasonably well by trading at median levels. Wheat and barley are in the bottom decile for the past five years.
The next step is to look at these commodity prices from outside of Australia. In this case we use US dollar five year percentiles and break the commodities into groups. Figure 2 looks at fibres, including wool from Australia and a range of other apparel fibres. The price ranks range from a high top decile performance by the Merino Cardings indicator through to bottom decile performances by cashmere, angora, mohair and crossbred wool. The merino combing indicators perform well (ranging from the sixth to the ninth decile) well above oil and the synthetic fibres. Cotton comes in close to the 21 MPG in the sixth decile. The longer the disparity continues between the high merino rankings and lower rankings for the major fibres, the more likely some demand will shift out of merino (especially the broader side of 19 micron) to alternative fibres.
Figure 3 looks at meat and protein prices from around the world. Salmon is the best performer followed by Australian beef and Australasian sheep meat prices. At the other end of the rankings are range of US beef quotes, along with fishmeal and the FAO pig meat index. The big discrepancy between Australian and US beef price ranks indicates some risk to Australian prices if US prices do not lift.
It remains a bit confounding that the supply dearth is concentrated in the southern states, given that the herd liquidation, and subsequent rebuild, should be concentrated in the north.
Prices for beef exported to Japan has been easing of late, which is a bit of a concern, given Japan is our major high value export market. With Japanese beef export prices sitting on a key support level, we take a look at what might happen to markets if prices break lower.
Australian beef has also found markets other than Japan, where the value is similar. The ‘other’ markets, mainly South East Asian Countries, and China, have increased their share of Australian beef exports to 31% in 2016, up from 12% in 2007 (figure 2).
Figure 3 shows the price of Grassfed Fullsets exported to Japan, along with the 90CL Frozen Cow exported to the US, and the monthly average National Heavy Steer Indicator. Since November the Grassfed Fullset has fallen nearly 9%.
Surging weekly Queensland throughput and above average NSW throughput weighed on cattle prices in these regions dragging down the east coast figures this week with the Eastern Young Cattle Indicator (EYCI) dropping to levels not seen since the start of the season.
NSW experiencing price declines in all NLRS saleyard categories, apart from Medium and Heavy Steers, with Trade Steers headlining with the biggest percentage decrease, down 6% to 332¢/kg lwt with elevated NSW throughput appearing to contributing to the price pressure – figure 2.
Register 
Often at Mecardo we look at local and global cattle price relationships in US$ terms as the US cattle market is one of the key drivers of Australian cattle prices over the longer term. However, in this analysis we flip the magnifying glass to take a look at global prices in our terms.
Taking a look at the correlation between US Feeder Steers and the EYCI we can see a moderately strong relationship between the two series when looking at annual average prices expressed in A$ terms – figure 3. Although, 
The lift in US prices since October has taken some of the downward pressure off local prices. Although from a longer term historical perspective local prices remain in overvalued territory and have not been helped by a stronger A$ during January.
ements suggest this will again be the case, so what does this mean for pricing over the coming months.
More interesting is what happens from there with the southern spread to the EYCI. Over February, March and April, the southern discount becomes a premium, as the supply of grass finished cattle tightens, as grass supply wanes.
It young cattle destined for slaughter, or trade steers and heifers, which are set to benefit the most over the coming months. Figure 3 shows that young cattle sold to processors improve 8% over the late summer and autumn. From the current level of 595¢/kg cwt, a narrowing of the discount to parity, would see the price reach 630-640¢/kg cwt. Prices haven’t been this good since October.