Category: Cattle

A fortnight ago the Bureau of Meteorology’s rainfall outlook wasn’t shaping up as too bad at least for the Southern parts of the country – how quickly it can all change. Yesterday’s release of the three-month outlook now points to a delayed Autumn break and much lower chance of rainfall exceeding the median across much of the Eastern half of the nation during March to May.

Cooler than average ocean temperatures to Australia’s west and south west have limited rainfall fronts crossing the country, leading to drier than usual conditions for all regions except for far north Queensland. A warming Pacific Ocean is keeping the prospect of an El Nino on the horizon and has seen the BOM forecast a drier than normal start to the Autumn break – Figure 1.

The bleak rainfall prospect and increased cattle yardings along the East coast conspired to see prices for younger store cattle and breeding stock ease this week with the Eastern Young Cattle Indicator (EYCI) falling 3.6% to its lowest level in over three years to close at 434¢/kg cwt yesterday.

Cattle throughput in the Eastern states lifting 14% on levels set the week prior to sit 5% above the five-year trend for this time in the season – Figure 2.

Young cattle in the East not the only cattle type to register a decline this week with the Medium Cow indicator leading the percentage price falls to see nearly a 5% drop to 175.9¢/kg lwt. Feeder Steers also easing slightly, down 1.4% to 250.4¢/kg lwt. Although, Trade, Medium and Heavy Steers beginning to show signs of supply concerns by posting 1%-6% price gains this week across the Eastern states – Figure 3.

In the West young cattle prices held their ground, registering only a 2¢ easing to remain above 500¢/kg cwt and in beef export markets the 90CL Frozen Cow indicator has held onto the 4% price gain from mid-February to close this week at 642.4¢/kg CIF.

Next week

The spread between the EYCI and 90CL is now approaching levels that would be considered extreme. The EYCI is at a 32% discount to the 90CL and the spread has only gone beyond a 39% discount for 5% of the time during the last two decades.

This is likely to see young cattle prices find a price base in the short term ahead of crucial support levels at the 400-420¢ region.

With everything pointing towards lower cattle supply, and grain prices on the wane, we would think the market should start taking heed at some stage. It was not this week though, with the downward trend in cattle prices extended.

Figure 1 gives a fair idea as to why cattle prices continue to fall. It has been four years since east coast cattle slaughter has been this strong at this time of year and it’s running 10% ahead of this time last year.

Interestingly, heavy slaughter cattle prices are not that far below last year. The National Trade Steer is 19¢ below the same time last year, but Heavy Steers are 2¢ better (Figure 2). Restockers and Feeders are dragging the chain, and the Eastern Young Cattle Indicator (EYCI) is now 72¢ off last years levels, at 449.5¢/kg cwt. The EYCI hasn’t been below 450¢ since April 2015 so looks like good buying.

Helping support finished cattle prices are rising 90CL export values. This week the price in US terms gained 6.5¢, while in our terms it was up 25¢. Figure 3 shows the increase in export values is nearing a 3 year high. In US terms the 90CL is heading towards a 10 month high.

It’s not surprising given the cheaper grain and better season, but the Western Young Cattle Indicator remains at a premium to its east coast counterpart. The WYCI is at 493¢/kg cwt, but well behind over the hooks prices. The WA MSA Steer is the most expensive in the country at 580¢/kg cwt, 40¢ ahead of this time last year.

What does it mean/next week?:

There’s no rain on the forecast and as such, it’s hard to see too much of a price rise on the cards.  However, the closer we get to an autumn break, assuming it’s coming, the closer we are to a rally.  The key to picking the market will be buying before the rain hits, which as we know from the ongoing dry, is not as easy as it sounds.

Softening cattle prices across the board this week and all major NLRS reported categories of cattle across the East coast are now below levels recorded this time last season, including Heavy Steers, albeit marginally. However, some respite may be on the horizon thanks to an improved BOM outlook.

East coast cattle sale yard prices and movements, for the week and year, are listed in Figure 1 and it shows there wasn’t much romance for cattle producers during Valentine’s week. Feeder Steers posting the largest percentage fall with an 8.7% decline to close at 250¢/kg cwt live weight, 11% lower than where they were this time last year.

The Eastern Young Cattle Indicator (EYCI) registering somewhat muted declines, peeling off 3.3% on the week to finish a whisker under 460¢/kg cwt. Remaining steer categories easing between 4%-6.5%, while Medium Cow managed the best with the slightest of declines to close the week at 191¢/kg lwt. Young cattle in Western Australian markets also managing to trek sideways to see the WYCI finish just a few cents under 500¢/kg cwt.

Cattle slaughter levels since the start of 2019 have been closely following the five-year average seasonal pattern but have been running 8.6% above the levels seen last season. The additional supply a possible reason why we have seen cattle prices drift below levels recorded this time last year – Figure 2.

The Bureau of Meteorology (BOM) providing a bit of a Valentine’s gift for cattle producers though. Their preliminary three-month rainfall outlook, released on the 14^th of February, showing a reasonably average start to the Autumn break for nearly all the Southern regions and patches of slightly drier areas in North Western WA, southern NT and Eastern Queensland – Figure 3.

Offshore beef export markets in the US also offering some love with the 90CL climbing to its highest level since mid-2017 to close above 625¢/kg CIF as a combination of reduced imported offerings, improved domestic US prices and increased US domestic demand have helped support imported grinding beef levels.

Next week

The combination of solid beef export prices and the first sign of an improved rainfall forecast should be enough to provide some support to cattle prices in the short term. A more in-depth rainfall outlook will be provided by the BOM at the end of the month and the closer we get to Autumn their forecast accuracy improves and may begin to encourage some restocking, at least in the south.

There have been floods in Townsville and massive rains across large swathes of Northern cattle country. There has, however, been no relief for much of the Murray Darling Basin. The wash-up, so to speak, was a little bit of support for cattle prices this week.

The Meat and Livestock Australia (MLA) cattle distribution map gives some food for thought (Link here). At June 30 in 2017 the areas which have been most wet accounted for 4.5 million head, or 17% of the National Herd.

While these regions are a long way from the slaughter markets we usually look at, cattle do flow south and so transport issues and the potential for grass growth could impact supplies to processors in Southern Queensland.

The Eastern Young Cattle Indicator (EYCI) only managed a marginal lift, gaining 6¢ to 478.5¢/g cwt, but prices in Queensland did make a bit of a move. The Queensland Heavy Steer Indicator gained 32¢ to 582¢/kg cwt (Figure 3), while Cows were up 26¢ to 426¢/kg cwt. Both are well above the same time last year when the EYCI is sitting at a 60¢ discount.

The Live Export prices out of Townsville were quoted at 290¢/kg lwt this week, at a discount to Darwin at 325¢. These prices are around the same as what is available from lotfeeders further south, so its unlikely many were heading that way. With the rain, there might be some now being drawn north, which should offer price support.

Back in 2016 MLA put out an interesting piece that looked at the Eastern Young Cattle Indicator’s (EYCI) performance over the month of January and compared it to the rest of the season. As each January ends it makes me think of this piece. Let’s hope for our beef producer’s sake it doesn’t hold this season.

Click here to recap on the original MLA article.

The basic premise of the piece was that the year on year January performance of the EYCI was often reflected in the rest of the season’s pattern, moving in the same direction and usually by a similar magnitude. The EYCI closed at 468.75¢ yesterday, around 13% below where it closed in January 2018 – Figure 1. If the principle holds this year it would see the EYCI testing towards the 400¢ level by year end, let’s hope not.

Young cattle in the West followed the EYCI lower to see the WYCI drift below 500¢ for the first time since June 2018. However, in offshore markets the 90CL imported cow indicator managed to hold above 600¢/kg CIF for the third week in a row. Steiner reports that US demand for this type of grinding beef has been lower over January but imported beef volumes from Australia and NZ have also been lower, thus keeping the price of the 90CL reasonably stable.

In domestic markets the EYCI was the only NLRS reported category of cattle to drop this week along the East coast with gains noted between 2%-8%. Medium Cow the most improved, posting a 7.9% lift to close at 195.1¢/kg lwt – Figure 2.

East coast cattle throughput for the week ending 25^th January dipping 36% from the previous weeks figure to see yarding levels 18% below the five-year average for this time in the season – Figure 3. Lower than normal cattle reported in NSW and Victorian sale yards dragging down the East coast total and the potential reason for the support being shown to most East coast cattle prices this week.

Next week

Monsoon type activity across northern Queensland will see increased rainfall levels start to impact into central Queensland in the coming week with falls between 25-100 mm expected as far south as Rockhampton, on the coast, and Charleville, in the centre.

However, there are limited falls forecast for NSW and Victoria mainly on the coastal/eastern regions. With the 90CL holding up so well its unlikely to expect the EYCI continue too much lower and with rain creeping further south in Queensland this will start to provide some support to the EYCI eligible cattle in the northern sale yards.

Cattle prices continued to slide this week, but managed to show some positive signs on Thursday. There were falls across the board on the east coast, as supply continued to overwhelm demand.

Even the Western Young Cattle Indicator (WYCI) has started to weaken, losing 11¢ this week to fall below 500¢ for just the second time in four years.  The WYCI of 496¢/kg cwt is the lowest price in four years.  It’s not unusual for things to be dry in WA at this time of year, but demand for young cattle seems to struggling.  High grain prices will no doubt have something to do with it.

On the east coast the early year price decline continued for much of the week.  The Eastern Young Cattle Indicator (EYCI) hit a low of 468¢ on Tuesday, before regaining some ground later in the week to finish at 471.75¢/kg cwt.  Cattle prices are well short of this time last year, and pre-Christmas, but as figure 1 shows, they are very good compared to anything pre 2015.

The historically strong price may be why cattle continue to be drawn to the market.  If we write off this wet season in the north, cattle producers in northern NSW and Queensland will be waiting on unseasonal dry season rain for feed.  It could be some way off.

It’s interesting to see that even finished cattle prices have tanked early in 2019. The eastern states Heavy Steer at 248¢/kg lwt is the lowest price since mid-2015.  Perhaps the strong supplies in feedlots is adding to supply pressure.

What does it mean/next week?:

Figure 2 shows there isn’t much rain on the forecast for southern cattle areas over the next week.  The best we can expect for prices under this scenario is steady, although an argument can be made for tightening supply of finished cattle.

For southern buyers who are looking for cattle, the decline in prices should be seen as a buying opportunity.  We are two months from an early break, if you are an optimist, and the more cattle that are killed now, means less cattle later on.

In the Friday cattle market comment from last week we mentioned that the Eastern Young Cattle Indicator (EYCI) was likely to find some support in the coming weeks from a firmer 90CL price. In this analysis we take a deeper look at the historic relationship between the EYCI and the imported 90CL into the USA, and what this may mean for the EYCI in the short term.

A quick recap on exactly what the 90CL is can be found here.

Historic price fluctuations of the EYCI and 90CL are outlined in Figure 1 and demonstrate that, for the most part, both price series follow a similar trend with the EYCI spending much of the time at a slight discount to the 90CL. As of last week, the 90CL imported frozen cow indicator closed at 602.8¢/kg CIF, compared to an EYCI close of 477.8¢/kg – representing nearly a 21% discount of the EYCI to the 90CL.

Analysis of the long-term percentage spread pattern between the EYCI and the 90CL shows that the average spread since 1996 has been a discount of 22% (black dotted line on Figure 2). Furthermore, the spread has spent 70% of the time fluctuating between a 1% premium to a 44% discount as identified by the grey shaded zone. Movement in the spread beyond a discount of 66% or a premium of 22% would be considered extreme, as shown by the 95% range boundaries (red dotted lines).

Comparison of annual average EYCI and 90CL prices (expressed in US$ terms to reflect a global beef price) demonstrates that there is a strong correlation between the price series with an R² correlation score of 0.8025 – Figure 3. The correlation measure can only range between 0 to 1 and the strong correlation score suggests that over the long term the EYCI value is heavily influenced by offshore beef market movements.

Dry seasons can see the EYCI more discounted to the 90CL than normal, as was the case in 2014/2015. While more favourable years with adequate rainfall can see the EYCI sometimes move to a premium to the 90CL, like in 2016.

What does it mean?

Opening EYCI levels for 2019 compared to the 90CL show that young cattle prices are sitting right on the line of best fit (green dotted line on figure 3) neither too high nor too low, which quite remarkable given how dry the second half of 2018 has been. This suggests offshore markets like the 90CL are unlikely to exert too much pressure on the EYCI to the topside, nor the downside.

The fact that the current EYCI to 90CL spread is quite close to the long-term average level also reinforces this view, so perhaps we were a little hasty on Friday suggesting that the EYCI would find immediate support from the rising 90CL price. Indeed, from a historic perspective the EYCI is just about right (compared to the 90CL), sitting comfortably in the Goldilocks zone – so perhaps consolidation at current levels is more likely for the moment.

Key points:

• The EYCI to 90CL spread is sitting just below a 21% discount, based off last week’s closing prices.
• The long-term average spread from 1996 to 2018 has been a discount of 22%.
• Based off the long-term price relationship between the EYCI and 90CL, the EYCI is sitting right where you would expect compared to the 90CL level.

The first full week of cattle sales for 2019 provides limited cheer after the festive break with all key reported categories along the east coast registering price falls. There was a glimmer of hope in offshore markets, but the Bureau of Meteorology (BOM) compounded the sad start by giving us a below average rainfall forecast for much of the summer.

Medium Cow led the decline, posting a 7.9% drop to trade at 183.2¢/kg lwt. The Eastern Young Cattle Indicator (EYCI) and Heavy Steers were not far behind Medium Cow, with 6.8% and 6.7% falls, respectively. The EYCI peeled off 32.5¢ on the week to close at 477.75¢/kg cwt (Figure 1).

In the West, young cattle prices managed to hold their ground with the Western Young Cattle Indicator (WYCI) continuing to stabilise near the 550¢/kg cwt area. There was more favourable news from North America though. Light beef volumes from Australia and New Zealand and limited insight into beef volumes coming into the US (due to the federal shutdown) has encouraged the 90CL Frozen Cow indicator higher. The 90CL has climbed 3% since the 2018 close to see it back above 600¢ for the first time since March 2018 (Figure 2).

Unfortunately, this season’s first look at the BOM rainfall outlook for the February to April period paints a gloomy picture for cattle producers across much of the country. There’s a low chance of exceeding median rainfall levels for much of WA, western SA, eastern Queensland and NSW, and most of Victoria (Figure 3). Ironically the lack of rain forecast managed to put a dampener on cattle prices this week.

Next week

As of last Fridays’ close, the 90CL was trading at 611.5¢/kg CIF putting it at nearly a 28% premium to the EYCI. Historically, the 90CL usually trades at a premium to the EYCI but the near 134¢ premium that currently exists is a bit outside the normal range. This should lend some support to the EYCI in the coming weeks if it can remain above 600¢.

The annual Victorian Weaner festival is off and running, with sales at Naracoorte, Mortlake and Yea last week. This week sees the Hamilton and Casterton sales kick off, and unfortunately for sellers, it has been a dry Christmas and New Year period.

For those who are buying, the lack of rain has been good news in terms of prices. Early sales have been around the levels of December. Reports out of Mortlake and Yea last week pegged weaner steers at values around 300-320¢/kg lwt for all steers from 280-450kgs.

The flat ¢/kg prices, regardless of weight, is a common indicator of a tough season, and more importantly, a lack of northern buyer interest. When northern buyers are bidding, lighter cattle tend to be at a strong premium to the heavier weaners.

Your usual market reports will quote how prices perform versus last year. We like to take a longer range view and look at value. Before Christmas we produced Figure 1 and, unusually we must say, little has changed. We haven’t seen an Eastern Young Cattle Indicator (EYCI) yet, but it doesn’t seem likely to change much.

Weaner Steer prices have opened January at a four year low but remain well above historical averages. The Weaner premium to the EYCI at 9.5% is a three year low, but interestingly, still ahead of previous drought impacted sales.

Our expected sell price ranges also haven’t changed, but it’s interesting to compare steers and heifers. Heifers are selling at 240-280¢/kg lwt, which makes them a good buying opportunity, given the discount to steers.

Figure 2 shows gross margins on converting weaner steers and heifers to light MSA Yearlings. Due to the discount narrowing significantly as cattle put on weight, heifer margins are much more attractive. Most steers purchased at weaner sales will be sold as feeders, which are likely to be priced a bit higher at 425kgs, but heifers are offering good returns and probably lower risk.

What does it mean/next week?:

For those able to buy weaners at this time of year, they still look like reasonable buying. They haven’t been this cheap for four years and relative to the EYCI, feeder and finished cattle values they are priced very reasonably.

Heifers are worth consideration for buyers. They are much cheaper in dollars per head, especially for those who are looking to finish cattle and sell to processors. Additionally, if we do see a good rain, breeding stock are going to be in strong demand and there will be plenty of upside in females.

Key Points

• Since mid-December rain has been largely absent from east coast cattle markets.
• January weaner sales prices have been relatively steady on December.
• Steers are selling at a strong premium to heifers, which look like good buying.