Category: Cattle

Increased cattle yarding across the eastern seaboard hasn’t slowed demand for young cattle this week but concern over export markets and the prospect of tighter margins appears to be slowing meat works appetite for finished cattle.

Figure 1 highlights the trend in weekly east coast cattle yarding levels and it shows in the last few weeks we have seen increasing numbers present at the sale yard. Weekly yarding has tipped over 60,000 head but remains under the five-year seasonal pattern – which is understandable given the lower herd this season.

Although, it does highlight demand remains robust and this is particularly true for young cattle with rainfall encouraging restockers into the market. Pushing the Eastern Young Cattle Indicator (EYCI) just short of record highs to close at 718¢/kg cwt, 7 cents short of the all-time peak. In the coming week, Mecardo will take a closer look at the restocker activity so far this season, so keep an eye out for that.

Finished cattle along the east coast has been having a good run of late. However, this week the eastern states’ heavy steer indicator took a pause, easing 3¢ to close at 341.75¢/kg lwt. The weekly trend in east coast cattle slaughter has dipped below the five-year trend in recent weeks highlighting the slowing processor demand in the face of high domestic prices, softening export prices and concerns around the ongoing spread of Covid-19 impacting global growth and weighing on international beef markets – Figure 2.

The 90CL benchmark beef export indicator dropped back under 700¢/kg CIF over the week, pressured by ongoing concerns over Chinese beef demand due to Covid-19 issues and higher NZ imported grinding beef supply into the USA. For the first time since the heady restocking episode of the 2016/17 season, the EYCI moved to a premium to the 90CL – Figure 3.

What does it mean/next week?

It still remains a bit of an unknown how the spread of Covid-19 will play out globally particularly with regard to the impact on beef export demand, but more clarity will be available in the coming weeks as we get access to the February trade figures.

Continued rain across the continent this week, including falls of up to 25mm in western NSW will continue to buoy young cattle prices and interest in breeding stock. There’s a good chance we will see the EYCI hit new all-time highs too. However, to really extend above into the high 700 cent region or even break into $8 territory we will need to see finished cattle prices continue to probe higher too, and this will only come with robust export markets.

Cattle supply is expected to wane, and prices are already on the rise.  It is still worth having a look at how the tighter cattle supply is likely to play out on a seasonal basis, and what this might mean for prices.

Last week we took a look at Meat & Livestock Australia’s (MLA) Cattle Industry projections on a broad basis, and this week we delve into what this will mean for prices. While the sheep and lamb prices are tightly tied to supply, cattle are a bit more complicated. The global nature of the cattle market means our prices are strongly impacted by supplies from other exporting countries.

As such, we’ve found cattle prices here are a result of export prices and supply.  Figure 1 demonstrates how the level of cattle slaughter governs the discount or premium of the Eastern Young Cattle Indicator (EYCI) to the 90CL Frozen Cow price, exported to the US.

We can see that in 2019, despite strong slaughter, the EYCI discount to the 90CL deviated significantly from the trend line. This was likely a factor of strong export prices and very weak restocker demand from the drought.

So far in 2020, the EYCI discount to the 90CL has narrowed, last week it was at 53¢, with the 90CL at 715¢/kg swt. This week, the discount is likely to narrow further, with the EYCI at 692¢ on Wednesday.

There is no guarantee the volatile export prices will stay at 700¢. Assuming it does, and the EYCI moves to a 20¢ premium, it gives the EYCI another 40-50¢ upside before it gets historically ‘expensive’ relative to export prices.

There will always be seasonality in livestock prices, and variations in supply generally govern how prices range around the average. Figure 2 shows how the MLA forecast slaughter of 7.2 million head will hit the market if five-year seasonality holds.

Cattle slaughter is expected to be over 10% lower than last year in all months.  October to December, which were strong slaughter months in 2019, are expected to take the biggest hit, with 17-20% fewer cattle expected to be slaughtered.

What does this mean?

Cattle prices have rallied so strongly they have nearly made up all the ground we would expect them to, relative to export prices. There could still be a further upside, but once the EYCI moves past export values, price resistance starts to mount.

The seasons have been far from normal recently, but rainfall might signal some sort of return. Once prices level out there could be a return to normal seasonality, with winter peaks and summer declines. The peak EYCI could be as high as 800¢, while the low shouldn’t be much less than current prices, providing the rain keeps coming.

Concerns over the Coronavirus spread has softened beef export prices in recent weeks, but tight supply and favourable rainfall has limited the impact on cattle prices at a domestic level. Australian beef exports for January were healthy, but an inability to get Corona under control could see export flows impacted in the coming months.

Just yesterday we saw a surge in reported Coronavirus outbreaks in China due to a change to the way they assessed the infection. Currently, there are 60,000 reported cases according to the Johns Hopkins University live mapping website.

US beef industry consultants Steiner are suggesting that the uncertainty around China’s ability to contain the spread of the Coronavirus is leading to a softening of the 90CL beef export price as Chinese beef demand slows with travel bans in China causing import congestion at Chinese ports. Supply chain bottlenecks in China are seemingly the cause of the 3% easing of the 90CL to close at 723¢/kg CIF.

Thankfully on a domestic level, the impact of Corona on cattle markets has been negligible. Yesterday Mecardo reported that there has been no sign of a negative impact on beef export volumes for January.

Additionally, the tight season expected in cattle markets for 2020 and the favourable rainfall patterns in recent weeks has continued to see cattle prices benefit. The Eastern Young Cattle Indicator (EYCI) gaining 6% this week to close at 662¢/kg cwt and narrowing the gap between it and the 90CL further – Figure 1.

East coast weekly cattle yarding figures have been averaging volumes nearly 20% lower than the five-year trend since the start of the 2020 season, trekking along the lower boundary of what would be considered normal for this time in the year and highlighting the expectation of the tight season ahead – Figure 2.

Next week

With the forecast of 15-50 mm of rainfall along the entire eastern seaboard in the coming week (Figure 3) it is unlikely we will see cattle supply expand any time soon. The continuation of the rain will likely see further restocker interest for store cattle and breeding stock.

Expect the EYCI to continue to probe higher in the short term, even if Coronavirus remains unchecked and export prices soften further, as the domestic situation of low supply and rain is providing good support.

Cattle markets have been waiting for a rain event, and it keeps coming.  Average January rainfall has been followed by more rain in Queensland this week, and more is forecast for the east coast this week.  If the drought hasn’t broken, price action suggests it is not far away.

The Eastern Young Cattle Indicator (EYCI) this week tore through 600¢ and finished Thursday at 623¢/kg cwt.  Restockers continued to drive values higher, averaging over 350¢ for steers in NSW and Queensland.  Feeders joined in this week, paying over 340¢/kg lwt for steers, 21¢ higher for the National Indicator.

Figure 1 shows the EYCI hasn’t been this strong since mid-2017, and it hasn’t seen a better than 100¢ increase in a month ever, as far as we can tell.

While Trade Cattle remained stubbornly steady at 300¢, Heavy Steer and Cows joined in the rally, the National Indicators sitting at 319 and 258¢ respectively this week.

Over the Hooks prices have also started to move, on average they were up 20¢ cwt at the start of the week and given they are still behind saleyard values, they might have to lift a bit further to get many bookings.

Export prices have continued to yo-yo this week, with the 90CL Frozen Cow Indicator easing 25¢ back to 744¢/kg swt. The price still leaves room for cattle prices to rise (figure 2), but the rally might start to slow.  That’s not to say it will stop, with 700¢ for the EYCI a realistic target.

Next Week

Meat and Livestock Australia’s cattle industry projections were released this week, so next, we’ll be looking at some long term forecasts.  Needless to say, things look very positive for cattle prices, with cheaper feed finally on its away and restocking on the minds of many in NSW and Queensland.