Category: Cattle

The Eastern Young Cattle Indicator (EYCI) is finally having a go at its winter rally. Seasonal conditions are on the improve in the south and it appears restockers might have decided it is time to take on some risk.

The rain was concentrated in southern areas again this week, with WA, Victoria and South East SA all receiving what could be considered normal winter falls. Parts of Queensland and NSW also got some rain, but it was a long way from drought breaking.

The improving season in the south appears to have given the market some impetus. The EYCI rallied 23.5¢ for the week to hit a 2019 high of 515.5¢/kg cwt (Figure 1). The price increase didn’t extend to finished cattle, with the Heavy Steer Indicator sitting well above its young cattle counterpart.

Cow prices have responded to the wet weather, however. The National Medium Cow Indicator has gained 85¢, or 29% in three weeks, also hitting a 2019 high of 435¢/kg cwt.  Not surprisingly Victorian Cows are leading the charge (Figure 1), sitting this week at 478¢/kg cwt, but not quite as expensive as in Tasmania, where they are 497¢.

We knew cow prices had some room to move higher. Figure 2 shows the Frozen Cow 90CL export price remains close to 700¢ in our terms.  Competition between China and the US for our lean trim remains strong and is keeping a floor under prices.

Cattle slaughter has dipped lower in recent weeks.  While it is coming off a four year high, tightening supply while export prices are good will lead to higher values at the saleyard.

Next week:

The latest Bureau of Meteorology (BOM) three-month outlook, released yesterday, doesn’t offer a lot of hope for a wetter than normal spring (Figure 3). Whether you believe the BOM forecasts or not, the forecast isn’t great for store cattle prices, but does suggest finished cattle will be hard to come by for some time yet.

Just when you thought cattle slaughter might start to fall as we headed into the depths of winter, the stats prove you wrong. East coast cattle slaughter hit a new four year high last week, with Victoria showing some unusual strength.

East coast cattle slaughter usually declines after the June long weekend but this year it has done anything but. Last week’s east coast slaughter hit another four year high, gaining 3.7% on the previous week and 10% on last year (Figure 1).

In last weeks comment, we talked about Victorian slaughter running hot, and then it got even hotter.  Figure 2 shows Victorian cattle slaughter streaking higher again, setting a four year high of its own.  There were 34% more cattle killed in Victoria last week compared to last year, and this helped lift the east coast rate.

The higher slaughter doesn’t seem to be having a negative impact on price, likely due to strong processor margins. The Eastern Young Cattle Indicator (EYCI) was steady for the week (Figure 3), while most other state indicators remained largely steady.

One indicator which caught our eye was the Victorian Medium Cow, which finished the week at 233.5¢/kg lwt.  The Vic medium cow was up 20¢ on last week and 39¢ on last year. The stronger cattle supply in Victoria appears to be demand driven.

No doubt part of the reason for steady cattle prices in the face of stronger slaughter is export beef prices. The 90CL has gained ground in recent weeks in US terms, and with the appreciating AUD/USD exchange rate, the 90CL in our terms remains steady at the very strong 685¢/kg swt.

Next week?:

Victoria, South East SA and South West WA are set to receive more follow up rain in the coming week. These areas don’t grow grass very quickly at this time of year, but it will no doubt give hope for improved crops and hay yields this year. Spring growth also gets closer every week, and with it improved demand for store stock.

• The EU certified spread premium has averaged 34¢/kg cwt over the last two decades, ranging from 15¢-53¢ for 70% of the time.
• Rising cattle prices in recent years have seen the EU spread premium erode in percentage terms.
• Since the middle of 2015, the EU certified percentage price spread premium has been unable to sustain levels above the long-term average, drifting along the lower end of the normal range.

A subscriber to Mecardo recently asked us to investigate the EU certified premiums available to producers that maintain their stock under the European Union Cattle Accreditation Scheme (EUCAS). Our subscriber was querying if there is a benefit to being EU accredited and if the premiums being achieved are worth the additional effort.

Certainly, the price behaviour of MLA reported over-the-hooks (OTH) EU steers to similar type OTH Heavy Steers in Queensland since 2015 shows that the EU steers usually obtain a premium, as outlined in Figure 1. Clearly an EU premium exists, but has it been expanding or narrowing over time?

In ¢/kg cwt terms the premium spread has averaged 34¢ over the last two decades, spending 70% of the time fluctuating between a premium of 15¢ and 53¢, as outlined by the grey shaded area on Figure 2. However, assessing the price spread in ¢/kg terms doesn’t consider higher underlying cattle prices that have occurred in recent years. To account for higher cattle prices, we should assess the historic spread pattern in percentage terms.

Analysis of the percentage price spread of EU certified Queensland OTH steers to Queensland OTH Heavy Steers for the last two decades shows that EU accredited stock have achieved a long-term average spread premium of 10%, with variations in the spread fluctuating between a 4%-16% premium for 70% of the time (Figure 3).

Furthermore, there have been times since 2000 that the spread premium has exceeded 20%, but these peaks have been far less frequent in recent years. Indeed, since the middle of 2015 the EU premium has spent most of the time at the lower end of the normal range, between a 4% to 8% premium. Currently, the EU premium for OTH EU steers versus OTH Heavy Steers in Queensland sits below the long-term average level at 8.3%.

Note: During the 2014/15 drought in Queensland OTH prices for EU certified steers ceased being reported so the spread was unable to be calculated during this timeframe.

What does it mean?

There are nearly 3,500 EU accredited farms and just over 50 EU accredited feedlots across Australia according the Department of Agriculture and Water Resources (DAWR) statistics. The DAWR website lists a range of requirements needed to be satisfied for producers to obtain and maintain EUCAS certified status.

It is claimed that cattle with EU certification attract a substantial price premium over non-EU accredited cattle of a similar type and this appears true when assessing the spread in ¢/kg cwt terms. However, spread premiums in ¢/kg terms have not kept pace with the underlying price of the cattle, so the spread in percentage terms has been eroded in recent times.

The Bureau of Meteorology (BOM) released their three-monthly rainfall outlook yesterday and it provided limited optimism for cattle prices to the end of Winter. The dry June across NSW and southern Queensland is not helping much either with elevated supply here keeping a lid on prices this week.

Being Western Victorian based we have received reasonably good rain so far this season, unfortunately for NSW, southern Queensland and the western half of South Australia the same cannot be said.

Figure 1 highlights the rainfall deciles for June and it shows large tracts of southern regions across the country suffering under below average rainfall. The prospect isn’t likely to improve as we head toward Spring according to the most recent BOM three month rainfall outlook with drier than average expected for much of the East coast and the southwestern half of WA.

The dry times are keeping East coast cattle yarding levels elevated (Figure 2) and a breakdown across the eastern states shows that it is NSW and Queensland that are contributing most to the higher throughput figures of late.

East coast yardings are trending 15% above the long-term average for this time in the season, this is despite Victorian numbers running below their average trend by 3%. The culprits for the higher East coast throughput levels are NSW and Queensland with yarding levels running 36% and 10% above average, respectively.

The Eastern Young Cattle Indicator (EYCI) reflected the higher east coast supply easing 3.5¢ to close at 488.75¢/kg cwt. Most National cattle price indicators mirrored the EYCI posting declines between 3.0¢ to 7.5¢.

However, processor buyers remaining active chasing the limited stock available to see Processor Yearling Steers, Heavy Steers and Medium Cow lift – Figure 3.

Next week

Reasonable rainfall is expected this week for Victoria and the southwestern coastal tip of WA, but limited falls are slated for the rest of the country. As outlined a few weeks ago, offshore export prices remain firm and this is keeping processor margins running strong, so they will continue to support the market on dips.

However, the extended dry across NSW and Queensland is limiting the opportunity for cattle prices to extend higher. This spells more price consolidation and sideways movement for the short term.

With a full week of sales returning, yardings were up, yet prices managed to hold ground and in some cases rise. Markets appear to be in a holding pattern, waiting for either a break, or lack thereof, before makings another move.

As producers made up for the short week, yardings in the Eastern Young Cattle Indicator (EYCI) lifted to a five week high (Figure 1). The main supply yards were in the north, with Roma and Dalby topping the yardings. Wagga was not far behind, and prices there were strong, helping the EYCI post a gain for the week.

Young cattle at Wagga made 570¢/kg cwt, while at the Roma Store sale they were 475¢. The north/south winter divide has come in strong.

The EYCI itself gained 17.7¢, helped by southern markets, and hit a six week high of 492¢/kg cwt.  Figure 2 shows the EYCI has only been higher in three weeks this year. Demand must be improved on recent weeks, with more cattle selling for higher prices. A bit of rain in the south seems to be helping.

The most expensive cattle in the country this week were Export Feeders from the paddock. At 330¢/kg cwt, export feeders are quoted 47¢ higher than domestic feeders, which weigh about 100kgs less. The dollar per head differential comes in at nearly $500. The grass or hay to put on the extra weight is obviously still hard to come by.

After a few down weeks, the 90CL Frozen Cow indicator has found it’s momentum again.  This week the 90CL gained 21¢ to almost get back to recent highs, at 687¢/kg swt. Demand for our beef on export markets remains strong.

Next week?:

The only areas that will see significant rainfall over the coming week are in WA.  As such we expect the holding pattern to continue in the cattle market, with tight supply being met by muted demand. 

More dry weather concern surrounding the new cereal crop is starting to grow. No cattle producers want to see another year of $400 grain and tight hay supplies, but every week it doesn’t rain the nervousness grows.

Softer cattle prices this week were noted, and impacts were felt most heavily on the younger cattle in the northern markets as the updated Bureau of Meteorology rainfall forecast for the next three months shows a troubling lead into Spring.

The Eastern Young Cattle Indicator (EYCI) closed 2.6% softer to finish the week at 474.5¢/kg cwt. Finished cattle were weaker too across the east coast with the Heavy Steer indicator shaving off 1.8% to close at 289.75¢/kg lwt.

Restocker Steer prices between Victoria and NSW showing the impact of the recent Victoria rains with Victorian Restocker Steers commanding a 30¢ premium over NSW to record a 38¢ gain on the week to close at 258.4¢/kg lwt. Despite the rainfall in Victoria in recent weeks the longer-term outlook is worrying.

The mid-month rainfall outlook released yesterday shows low chances of exceeding median rainfall for much of the country as Winter comes to an end. Delving into the month by month rainfall summary shows that August is the best chance for rain in the northern NSW and southern Queensland region. However, across the entire three-month window chances of a drier than average finish to Winter across the southeast and south west of the country exceeds 75% – Figure 1.

Looking back to the final stages of the 2014/15 herd liquidation it was the dry conditions keeping young cattle prices subdued across Australia, despite offshore leading indicators like the 90CL rallying strongly. As the two circles demonstrate on Figure 2, a similar picture is emerging at present with the EYCI to 90CL spread moving to a significant discount like what transpired at the end of the 2014/15 liquidation.

Next week

Based on the current annual cattle slaughter projections and the historic relationship between slaughter levels and the EYCI to 90CL spread the EYCI should be around 150¢ higher – Figure 3. However, the lack of rain and the poor forecast for the remainder of Winter is weighing on young cattle prices.

The short-term outlook points to sideways price consolidation as limited rainfall will act as a significant headwind. In contrast, strong offshore prices, robust export demand and healthy processor margins continue to support the cattle market on any price dips.

Last week we saw a four year high for cattle slaughter, yet this week young cattle prices rallied as supply followed its usual seasonal pattern. There is also some interesting weather on the way, which could help markets on both coasts.

It seems a bit counterintuitive, but figure 1 shows that on average, June is the peak for cattle slaughter for the year. Last week cattle slaughter broke higher than the five year average, and moved 5.5% higher than the same week last year.

The usual trend from here is for cattle slaughter to ease all the way through to October. After the long weekend, we’ll see whether the heavy slaughter can be maintained.

Young cattle yardings, included in the Eastern Young Cattle Indicator (EYCI) in figure 2, are following the usual trend. While being slightly higher this week, EYCI yardings are at the lower end of the annual scale.

Given the heavy slaughter and rise yardings, it was unusual to see the EYCI rally this week, and rally relatively strongly. The EYCI gained 16¢ for the week to hit 487.25¢/kg cwt (Figure 3).

Beef exports values are no doubt helping push slaughter to highs and maybe even propping up the EYCI, as processors bid up for cattle in yards. This week the 90CL Frozen Cow indicator did lose some ground, however, extending the fall to 40¢ in two weeks. While the 660¢/kg swt is well down, it remains 15% above the same time last year and 180¢ above the EYCI itself.

Next week?:

There is rain approaching both east and west coasts next week. In the east it’s patchy, and in the west major cattle areas will get a good rain. The rain in Victoria and SA will see the normal seasonal tightening continue, and prices in the south should find some support.

Over in the west, markets have been tracking sideways, but tighter supply is due to hit, and will be helped by the rain. Processor margins currently look healthy, so a bit of rain might see prices creep higher.

After a few weeks of yo-yoing movements for the Eastern Young Cattle Indicator (EYCI) prices have stabilised this week as east coast cattle supply measures have moved toward more normal seasonal levels.

The EYCI closed the week a mere 3¢ higher to see it finish at 471.75¢/kg cwt. The minor price adjustment over the week was mirrored across national cattle prices at the sale yard too with most categories posting mixed weekly moves within the 5¢-10¢ range – Figure 1.

Restocker Yearling Steers the best performer on the week gaining nearly 9¢ to finish at 258.7¢/kg lwt buoyed by increased optimism from southern restockers encouraged by decent rainfall across Victoria and southern NSW this week.

After a few months of wild swings in east coast cattle yardings recent levels have settled just below the five-year seasonal average for late May at around 55,000 head changing hands at the sale yard – Figure 2. The historic seasonal pattern for the next month indicates tighter conditions are likely to see weekly yarding move toward the 45,000 head level into June.

East coast weekly slaughter levels have been climbing steadily throughout May to see it a whisker above the five-year seasonal trend at 156,175 head – Figure 3.  This is the highest weekly slaughter recorded so far this season but as the long terms seasonal trend demonstrates we are only a few weeks away from the usually Winter dip in slaughter activity.

Next week

Fairly light rainfall is on the horizon for the coming week, with heavier falls centered close to the coastal fringe of Victoria and WA. The lack of rain for inland regions won’t lend support to cattle prices in the short term. However, if the slaughter and yarding trend follows the usual seasonal pattern lower into June the tighter supply may help to underpin prices.

In offshore markets the 90CL frozen cow indicator was a little softer this week but sitting at nearly 200¢ above the EYCI at 667¢/kg cwt it will continue to support local cattle prices on any dips too.

Cattle markets largely steadied this week, as the yo yo which has been young cattle values stopped to take a look around.  Slaughter rates have been running hot, keeping a lid on prices despite the 90CL hitting a 4 year high.

Just when we thought the heavy supply of cattle in general was on the wane, slaughter rates jumped higher last week.  The 153,569 (figure 1) head of cattle slaughtered last week was the second biggest week for the year.

In NSW and Queensland female slaughter rates remain high, sitting 14% and 16% above the same week last year respectively.  We know high female rates can’t go on forever, and with total slaughter will have to fall at some stage.

Lower prices seems to have had some impact on supply at saleyard level.  Young cattle yardings in Eastern Young Cattle Indicator (EYCI) yards fell by 18%, and this helped push the EYCI 8¢ higher to 468.75¢/kg cwt (figure 2).

With the Aussie dollar falling below 69US¢ this week the 90CL in our terms received a 10¢ boost.  Sitting at 696¢/kg swt, it has been 4 years since the 90CL was this strong.  Strong beef export prices are no doubt helping keep prices reasonable in the face of heavy supply, but will also contribute to a strong rally if and when supply tightens.

The WA Young Cattle Indicator (WYCI) is holding its premium to its East Coast counterpart.  There are better premium in finished cattle market in the west however, with over the hooks rates of 540-580¢ for steer easily beating the 520-530 available ‘over east’.  WA prices are a good indication of what the export market can pay.

What does it mean/next week?:

While some key cattle areas in Victoria and South East SA are going to get some more rain this week, the rest of the country is going to stay dry.  As such we don’t expect any rapid rallies in young cattle prices, but finished grassfed cattle could continue to creep higher.

A fortnight ago we were talking about the Eastern Young Cattle Indicator (EYCI) yo yo going up.  This week the yo yo went down, with young cattle prices falling back towards April lows.  When looking for a culprit, it would seem a return to dry conditions might be to blame.

Figure 1 shows the EYCI only managed to spend one week above last year’s levels, before tanking heavily this week.  The 8% drop took the EYCI back to 460¢/kg cwt.  The fall in young cattle prices was widespread, with the big movers being Inverell, Gunnedah and Scone, which all lost around 70¢.

The biggest yard in the EYCI, the Roma store sale, lost 25¢, falling to 481¢/kg cwt, so it maintains a premium to the EYCI itself.

With yardings relatively steady for the week, it would seem demand was to blame for falling young cattle prices.  Restocker Steer Indicators saw the largest falls, while trade steers also lost some value.  Feeder cattle were largely steady, suggesting demand for heavier young cattle remains strong.

Heavy Steer demand was definitely not on the wane.  Figure 2 shows the NSW Heavy Steer Indicator rallied a further 37¢, moving to 526¢/kg cwt.  In Victoria and NSW Heavy Steers maintained their value, and are now back at close to record premiums to the EYCI.

The dry autumn in WA came to impact markets this week.  The Western Young Cattle Indicator fell 42¢ this week to 505¢/kg cwt, but it remains at a premium to its east coast counterpart.

 The Aussie dollar lost more ground this week, finishing close to 69 US¢, and pushing the 90CL Indicator back up to 689¢/kg swt.  The 90CL is now a full 100¢ above the same time last year.

What does it mean/next week?:

Key cattle areas aren’t going to receive much rain this week.  There will be a bit in south west WA which might help there, and parts of SA will get some more, but it is unlikely to be enough to see young cattle prices rally.  It’s hard to see finished cattle prices falling however, with supply unlikely to improve until the spring.