Category: Cattle

Buyers take a pause as dry weather outlook released

Posted on by Caitlin Dearden

The Eastern Young Cattle Indicator (EYCI) was FIGURE 1
marginally softer this week as the Australia Day
holiday and a release from the Bureau of Meteorology
(BOM) showing dryer conditions expected for
February through to April gave buyers reason to pause.

Figure 1 highlights the anticipated rainfall outlook
released from BOM which highlights a reduced
likelihood for rainfall to exceed the seasonal averages
for much of the central and south-eastern region of the
nation. The Bureau is also forecasting a hotter than
average minimum and maximum temperature range
for the same areas of the country anticipated to Figure 2
experience the dry spell. The dry and hot forecast
appearing to take some of the “heat” out for the cattle
market this week.

East coast cattle slaughter figures for the week ending
20th January coming in 2.8% higher than for the same
time in 2016 at 112,995 head boosted by Queensland
weekly slaughter figures. Indeed, Queensland was the
only state in the nation to record weekly slaughter
figures above the 2016 levels and above the five-year
average for this time of the year. Despite the boost from
the “Sunshine state” total east coast slaughter is still Figure 3
tracking 8.2% below the five-year average trend – figure 2.

Figure 3 outlines this week’s sideways movement in
EYCI closing just 0.75¢ softer at 651.5¢/kg cwt as
restockers pause to think about the weather implications.
This time last year the MLA released an article looking
at the relationship between movements in the EYCI
over January compared the overall performance over
the season. Interestingly they discovered that 78% of
the time the January performance was mirrored in the
rest of the year’s performance.

The week ahead

The MLA article would seem to suggest that based on this
January’s price movements we are in for a positive price
pattern this year, although not as strong price gains as those
that occurred during 2015 and 2016 – figure 3. As we head
into February eyes will be on the skies, temperature gauges
and the condition of the pasture as this will influence how
aggressive restocker demand will be for cattle and if they
will continue to drive the price direction as much as they
did last season.

Support coming from US export market

Posted on by Caitlin Dearden

Cattle prices edged higher this week, as markets remain in a holding pattern, seemingly across all levels.  Export beef prices have started the year relatively steady, putting a base in the market.  Slaughter cattle are maybe a little too expensive for processors, but tight supply and restocker demand is supporting prices.

Figure2 State Trader Steer Prices

Regular readers will know we often quote the 90CL Frozen Cow indicator as a benchmark for export beef prices.  Historically the 90CL has had a good relationship with cattle prices here, and it is reported weekly, hence we like to use it.

This week the 90CL edged a little higher, hitting 590¢/kg cwt, almost exactly the same level as this time last year (figure 1).  In fact, the 90CL indicator has tracked in a historically narrow range for much of the last 12 months, bouncing between 550 and 600¢/kg swt.  Tight supply out of Australia and New Zealand has been somewhat counteracted by weakening demand from the US.

According to the weekly Steiner report, beef demand in the US has improved recently.  This has been on the back of cheaper domestic beef, and improving margins for retailers, therefore they have been pushing beef in their marketing campaigns.  For us it’s strange to think retail or fast food marketing campaigns could have any impact on cattle prices, but apparently it’s gFigure1 90CL vs EYCIood for us if McDonalds sell more burgers in the US.

Locally it was Queensland where the action was this week.  The Qld trade steer indicator rallied 50¢ to 625¢/kg cwt (figure 2).  The saleyards in Queensland are a full dollar higher than the Over the Hooks quote.

 

The week ahead

Figure 2 shows there is little difference between state trade steer indicators, which is normal for this time of year, as markets move into a holding pattern.  The next major market move is usually lower in autumn, as northern weaner cattle and cull cows hit the market.  How much impact this has this year will depend on rainfall, obviously.

Cattle projections forecasting lower slaughter but demand will drive prices

Posted on by Caitlin Dearden

Meat and Livestock Australia (MLA) have hit the target
with their recent cattle projections, and as such not much
has changed in their January update. It is, however, Figure 1
worthwhile taking a look at what the peak body see is
going to be the supply situation for the coming year
and beyond.

Figure 1 shows MLA’s slaughter and herd projections,
and how slaughter has changed from the October
estimates. The herd is still expected to have bottomed
out last year, at 26.14 million head, a 20 year low.

A relatively quick herd rebuild is expected, on the
back of 20 year low slaughter rates next year. The herdFigure 2
isn’t expected to reach the highs of 2013 in the next five years,
but is expected to move back above 28 million head by 2019.

MLA have made some slight revisions to slaughter
numbers. For 2016 slaughter was down 100,000 head,
and this has been shifted into 2017, lifting the estimate
by 1.4% to 7.1 million head. Further down the track
slaughter estimates have been lifted marginally,
basically due to the herd being slightly larger than previously estimated.

The projections of 8 million head slaughtered in 2020 Figure 3
and 2021 are high relative to historical levels, but remain
well behind the peaks of 2014 and 2015. Obviously MLA’s projections are based on ‘normal’ seasonal conditions, with the growth in the herd driven by current strong prices, and the fact many regions are currently understocked.

Some interesting figures from this week’s projections
comes from the average carcase weights of cattle
slaughtered. Figure 2 shows a jump in slaughter weights
in 2016, from the lows of the drought where heavy female
young cattle slaughter saw weights at 278-279kgs. In 2016
slaughter weights increased 3% to 287kgs per head, and
are expected to start a slow ascent to 291kgs by 2021.

Interestingly the 2016 slaughter weights couldn’t quite
eclipse those seen in 2012, which suggests that the good
season wasn’t enough to see cattle held to heavier weights.
Rather producers took the good money when cattle
were ready.

Key points:

  • MLA have released their updated cattle projections,
    with little change to herd or slaughter forecasts.
  • The cattle herd is expected to have bottomed out in 2016,
    with the slaughter low coming this year.
  • Continued tight cattle supply should ensure prices
    remain relatively strong for the coming year.

What does this mean?

Regular readers will be familiar with figure 3, which plots
the spread between the 90CL export price and the EYCI,
against annual cattle slaughter. The fact that the 2016
point sits well above the trend suggests local demand
was very strong in 2016.

As that restocker demand wanes as the herd grows we
would expect the EYCI’s premium over the 90CL to fall
back to the trend line. This means that even though slaughter
is expected to be lower this year, we may see lower prices as
well, with the current 90CL price, and the historical trend
suggesting the EYCI should average around 600¢ in 2017.

Demand driving cattle prices higher

Posted on by Caitlin Dearden

Cattle markets have opened 2017 with a bit of a bang,
with extraordinary restocker demand, and very good
feeder demand driving prices higher. Cattle supply in
saleyards has been similar to last year, so it would
seem demand is the driver.

The Eastern Young Cattle Indicator (EYCI) has
rallied back above 650¢/kg cwt this week, hitting a
six week high (figure 1). With the dearth of quotes for
the cattle market last week, it’s hard to pinpoint who
is driving the stronger prices. However, with the east
coast trade steer sitting at 632¢, and feeder cattle
around 10¢ higher, it would seem restockers are
dragging the EYCI higher.

East Coast cattle yardings rallied higher this week,
which is not unusual as normal sales resume. Usually
the pent up supply from the break sees prices move
sideways in January, but it appears it is pent up
demand pushing prices higher.

Some recent rain in Queensland has no doubt helped
push demand in the north, but large parts of
southern Queensland and NSW are still 25-100mm
below the January average.

After opening up much stronger, heavy steers eased
marginally this week (figure 3) as the strong price
drew out supply, while cows were also a little lower.
Despite the wide spread between finished and store
cattle prices, the numbers seem to still be working for
those purchasing expensive young cattle.

The Week Ahead

There has been a few positives for the cattle market of late,
and this has resulted in higher prices early this year.
Add to this the widespread rain which is forecast
for the next week and we could see a little more
upside for prices in the short term.

However, unless we see a strong rally in export values,
it’s hard to see cattle getting back to the levels of last
spring, with 5% upside probably the limit.

 

Input update: Fertilizer and Fuel (Jan 2017)

Posted on by Caitlin Dearden

Key Points

  • The August-November average diesel price at port was $106/l
    versus $116 for the past month.
  • There is a global glut of fertilizers on the market which is unlikely to rectify anytime soon.

The harvest is all but done, now is the time to start looking towards next year. There will be changes in planting, a little more of this and a little less of that. However, regardless of what you plant you will be burning diesel and spreading fertilizer. In this report, we look at these two important inputs.

In the last two months’ millions of litres of diesel
will have been burnt across the grain growing regions
of Australia, and in reality, we are only a few months
away from starting all over again with seeding and
the diesel bills will start flowing in. In figure 1,
the average port diesel price for Australia is
displayed since the start of 2015. Assuming that
most farmers purchased their fuel well in advance
of harvest as recommended by Mecardo early in 2016,
the input costs for fuel for the 2016/17 harvest
will be considerably lower than current levels.

The average diesel price for Aug/Nov was A$106/l,
versus A$116/l for the past month. Although diesel is
creeping back up diesel prices have spent a lot of the
last ten years above current levels (figure 2). In late
December OPEC agreed for the first time in eight
years to cut oil production, which alongside improving
economic conditions has led to an increase in crude
oil prices and therefore diesel. The market for oil is
hard to predict and in coming months it is important
to keep a close eye on the market with a view to
locking in fuel for the coming season either through
swaps or fuel contracts.

The picture is rosier when it comes to fertilizer. In
figure 3, we can see that both DAP and Urea are both
pricing at good levels since the start of the decade.
Although Urea has seen an uptick in past months, the
outlook for fertilizer supply still points to a surplus for
at least the next two to three years. The supply issue
aside the real risk is a fall in the A$ increasing the
cost of imports.

What does it mean?

The fertilizer market remains at low levels; however,
the market outlook remains bearish to neutral reducing
the impetus to go out straight away and stock up.

In terms of fuel the outlook is less certain, and looking in
a proportion of fuel requirements in advance could be an
advisable risk management strategy.

 

Friday 13th not unlucky for national cattle prices

Posted on by Caitlin Dearden

A positive start for 2017 with gains across the board for national
cattle prices, despite the “Black Friday” finish to the first trading
week. The Eastern Young Cattle Indicator (EYCI) up 1% from last
year’s closing price to reach 640.5¢/kg cwt while the National
Medium Steer price, mirroring the percentage EYCI gain, also
1% higher to close at 296.8¢/kg lwt.

Feeder Steers posting the lightest of gains, up a mere 0.8% to
347.6¢/kg lwt. National Heavy Steers back above 300¢ with a
modest 3.4% increase from the 2016 finishing price to test
304¢/kg lwt. Trade Steers the best performers up 6%
to 345.2¢/kg lwt – figure 1.

The positive sentiment has flown through to the annual weaner
sales across the nation with heavier weaners (above 330 kg) fetching
between 350¢ to 400¢/kg lwt and lighter weaners (200-280kg)
going for over 390¢ to 440¢/kg lwt.

As outlined in our analysis piece this week a rebound in US cattle
futures prices (figure 2) have provided some flow through price
support for local cattle prices, relieving some of the downside price
pressure evident into the later months of 2016. Although BOM
three-month outlook to March 2017 suggests somewhat drier
conditions than normal for much of the eastern seaboard which 
may give restockers a reason not to chase prices for young cattle
too high into 2017, particularly if pasture growth begins to wane –
figure 3.

The Week Ahead

As we head into 2017 an anticipated tighter supply of available cattle and improved US cattle prices will continue to support local cattle prices.
On the flip side, a dryer start to the season for much of the eastern
seaboard and the prospect of a market correction into the later part
of 2017 or early/mid 2018 should act as a headwind on
prices outperforming the 2016 peaks.

 

US market and exchange rate showing some reason for optimism

Posted on by Caitlin Dearden

We have been talking about the spectre of a correction in the Australian
cattle market for some time. The main driver behind any fall in prices, apart from local climatic issues, will be the weakness in international cattle markets. There is some reason for optimism however, with US cattle futures making some sort of a comeback in November and December.

Regular readers will be well aware that while the boom in local young cattle prices is reaching fever pitch at the moment, on an international level it is well and truly over. The US is one of Australia’s major markets for manufacturing beef, as well as a competitor in high value markets of Japan and Korea. As such what happens in the US cattle markets will
generally have an impact on our markets at some stage.

Figure 1 shows how US Feeder cattle futures have tanked since
reaching a peak in July 2015. However, US Feeder do seem to have
found some sort of base, having bounced 12% since hitting a 3 year
low in November. We can also see in figure 1 that the US price rally,
along with a fall in the Eastern Young Cattle Indicator (EYCI) means
that after a brief period at a premium, our prices are back at a discount.
Believe it or not, this is a good thing, it means pressure on prices to move lower will ease.

Additionally the easing Aussie dollar has added further upside to US prices in our terms, Feeder cattle futures have gained 16%, adding support for local prices.

In finished cattle markets in the US the price improvement has been
even more marked. Figure 2 shows US Live Cattle Futures, which is
roughly equivalent to heavy grainfed cattle here, has gained 19.5% in
US terms and 23.5% in our terms. This equates to 100¢/kg cwt in our terms,
and basically means that US beef that competes with ours in Japan and
Korea is more expensive than it was two months ago.

Further encouragement for local prices can come from the fact that
Queensland Grainfed Cattle prices have historically spent long periods at or
around parity with US prices. Under a tight supply scenario, there is little
pressure on heavy grainfed cattle prices to fall.

Key points:

  • US Cattle prices have made a recovery from the 3 year lows seen in November.
  • The falling Aussie dollar has added more strength to the US equivalent prices in our terms.
  • If US cattle prices remain strong they should provide support for Australian values.

 

What does this mean?

Before the rally in US cattle prices at the end of 2016 we were concerned about downside for
heavy grainfed, and grassfed cattle. Eventually weaker heavy cattle prices would translate into
feeder and young cattle prices. However, the pressure on heavy cattle values has eased somewhat,
and while the market might struggle to move higher without help from the US, downside is limited
as long as US prices don’t tank again.

Continued strong heavy cattle prices will continue to support young cattle prices, as long as feed
remains abundant and cheap, which it should – at least in the short term.