Tag: Cattle

Processor margins remain elevated and have moved back above the upper end of the normal range during August. The healthy margins appear to be encouraging processor optimism at the saleyard according to the behaviour of the spread pattern so far this season. However, is the optimism enough to spark a rally in the EYCI.

The Mecardo processor cut-out model shows that margins have improved over the month to see the average margin level lift from $81.50 per head in July to $180.65 in August. The rebound in the processor margin places the August figure back above the normal margin range, as identified by the grey shaded region in Figure 1 – which represents where the margin has fluctuated for 70% of the time since 2000.

The improvement in processor margins this season began in March and have been recording above-average returns since. Underlying data of buyer behaviour at the saleyard for EYCI eligible cattle shows the weekly spread processors have been prepared to pay above or below the EYCI has been improving since March. It has moved from a discount of 7% in March to a peak of 4% premium in August (Figure 2).

The EYCI processor spread has softened over early September as the EYCI rallied from 444¢ to 490¢. This suggests that processors aren’t inclined to chase the market up despite the good margins being achieved but are more comfortable to provide buying support on dips.

Analysis of the long-term EYCI processor spread pattern, based off the monthly average spread movements since 2004, shows we are nearing all-time highs at a premium spread of 2%. The last time processors were paying average monthly premium spreads in the 2% premium region was during 2014 when offshore demand from the USA was booming and processor margins reached nearly $400 per head monthly (Figure 3).

What does it mean?  

It’s hard to see processor activity driving the EYCI higher in any sustained manner, given we are already near extreme historic levels with regard to the spread behaviour. Despite the robust processor margins being achieved at present, they are still a fair way short of the margins that were being made during 2014. Even processor margins over $300 per head weren’t enough to get the processor spread premium extending higher.

A more likely scenario is to continue to see processors actively supporting the young cattle market anytime we see a price dip towards the 420-450¢ level while their margins remain above average.

Key points:

• The monthly processor margin has lifted from $81.50 in July to $180.65 in August, per head of animal processed.
• Improved margins have seen processors more willing to pay up for cattle at the saleyard with the processor spread narrowing from a 7% discount to a 4% premium from March to August.
• Robust processor margins are more likely to provide firm price support on any market dips rather than spark a fresh rally.

Despite more upside for the Eastern Young Cattle Indicator (EYCI) it, along with restocker markets, are still languishing behind last year’s levels. The same can’t be said for finished cattle markets, which have moved well ahead of the same time last year.

The EYCI managed a 4.5¢ rise this week to 488.5¢/kg cwt thanks to another week of tight supply. EYCI yardings were at just 10,403 on Thursday, with Roma contributing 23% of the numbers. There was a bit more rain about in NSW which obviously helped keep sellers optimistic and cattle at home.

This time last year Heavy Steer prices were on the decline. Dry weather saw plenty of cattle coming to the market. This year, the lack of feed over the last 6 to 12 months is seeing fewer grassfed cattle available and higher Heavy Steer prices despite the dry (Figure 1).

The NSW Heavy Steer has only been higher in one week since July last year. The same goes for the Victorian indicator, although it is slightly stronger at 556¢/kg cwt.

The WA Young Cattle Indicator (WYCI) jumped higher this week, with Figure 2 showing it is now matching the 90CL Frozen Cow indicator. The WYCI is now strongly outstripping its east coast counterpart, with more grass and cheaper feed grain adding demand to tight supply.

Export prices have been remarkably steady for the last 12 months, even during the drought-induced heavier supply. This is good news for continued support for prices.

What does it mean/next week?:

With some more rain forecast for some key areas of the NSW slopes, it’s hard to see increases in supply or decreases in price. As with recent falls, it won’t be drought-breaking, but it will at least provide some hope that it can rain and might again.

Normal seasonality has been thrown out the window. This year it’s more of a case of where fair pricing is, and when the rain comes to take values back there.

The latest export figures from the Department of Agriculture and Water Resources (DAWR) shows beef product exported has strengthened on the July figures with a total of 106,921 tonnes consigned during August, recording the second highest monthly total for the year.

The monthly trend in Australian beef exports for 2018 has been trekking above the seasonal average pattern since April, predominantly due to a surge in demand out of China. During August beef exports continued to climb to see it sit 8% above the five-year average for August (Figure 1).

Traditionally, export volumes tend to decline into late Winter as domestic supply tightens but with slaughter levels running the highest they have been since 2015, as dry conditions make the herd rebuild difficult, export levels have managed to outpace the previous two seasons. Indeed, beef exports for 2018 have been running 13% above 2017 levels and are 9% higher than the volume recorded for the January to August period of 2016.

Notably, in recent months there has been a resurgence in demand for Australian beef out of China and the figures released for August were no exception. Beef consignments to China last month totalled 14,516 tonnes, the highest August figure since 2013 and 38% above the five-year average level for August (Figure 2). The recovery in Chinese demand for our beef product over the last four months is a promising sign, particularly when compared to last season. May through to August has seen Chinese demand for Australian beef exports surge 75% higher than for the same time frame in 2017.

During August, China wasn’t the only export destination to contribute to the higher beef flows. South Korea registered a jump in volume over the month to see it reach the highest monthly total in nearly two years at 18,047 tonnes. The August total for South Korea is sitting 39% above the five-year seasonal trend for August (Figure 3).

What does it mean?  

The beef export figures for August demonstrate the importance of encouraging diversity in export destinations and highlights the value of market access programs organised by industry bodies such as Meat and Livestock Australia. Similarly, free trade negotiations such as those recently secured with Indonesia and our reputation as a good global citizen, such as how we interact with our neighbours in terms of foreign aid, can assist in maintaining market access for our commodities and developing new markets.

During August Australian beef flows to the US (our second largest export destination) ran 16% below average. The dip in US demand was more than offset by the Chinese and South Korean appetite reinforcing the importance of maintaining current trade relations and continuing to expand access to alternative markets.

Key points:

• Total beef exports for August are running 8% above the five-year average for August.
• Over the last four months, Chinese demand for Australian beef has lifted to 75% above the levels seen during 2017.
• Monthly flow of Aussie beef to South Korea has recorded its highest level in nearly two years.

Decent rain for parts of northern NSW and south east Queensland was enough to provide a bit of a price boost across all MLA reported eastern states cattle categories this week. Although, the seasonally low throughput levels and tightening supply are just as likely causes for the price turn around.

Rainfall totals exceeding 50 mm were recorded in parts of northeastern New South Wales and inland southeastern Queensland, bringing some short-term relief to producers in these regions (Figure 1). In response to the rain, cattle prices across the east coast lifted across the board. The Eastern Young Cattle Indicator (EYCI) jumped 23¢ to close at 484¢/kg cwt.

Price gains weren’t limited to young cattle, with the Heavy Steer Indicator up 14¢ to 283¢/kg and medium steers posting a 17¢ rally to 274¢/kg on a live weight basis. Heavy and medium steer prices are once again above levels recorded this time last season (Table 1).

Weekly throughput levels for EYCI eligible cattle has been in decline since early July. As young cattle prices have eased, producers have tightened supply. Indeed, EYCI cattle yardings dropped to their lowest weekly level since April, with average daily throughput for the week hitting 9,496 head and creeping under the normal seasonal range in throughput that is expected for this time of year (Figure 2).

The EYCI yarding sits 30% under the weekly ten-year seasonal average at the moment, which is uncharacteristic for this season. As identified by the 2018 trend in the EYCI yarding, most of this year has been spent trending above average and at the upper boundary of the normal seasonal range. This is reflective of the dry conditions.

Next week

Thankfully there is more rain on the short-term horizon for much of eastern NSW and Victoria and this is likely to continue to lift spirits in areas suffering drought. However, the rainfall forecast for the month of September points to a drier than average situation.

A return to dry conditions in areas with minimal subsoil moisture in the bank could see pressure return to cattle prices in the coming weeks as many regions rely on late Winter/early Spring rains to grow enough pasture to get them over a dry Summer.

With a little bit of precipitation on the forecast, there is also a bit of positivity around the young cattle price. While it doesn’t rain grass, or demand, a forecast of rain will often halt supply. It seems we have seen the beginning this week.

The talk around the footy sheds last night was around buying cattle before rain tightens supply. This was in South West Victoria where normal winter rain has fallen, so the flush of grass is just around the corner and backgrounders are looking to load up.

It hasn’t rained yet, but the forecasts are promising. As usual, the Bureau of Meteorology (BOM) are the most conservative (Figure 1), but two inches over a large part of Northern NSW would obviously be a start.

We’re not sure if it’s the spectre of rain, but the Eastern Young Cattle Indicator yardings hit a new full week low of just 10,730 head (Figure 2). This was 26% lower than the previous week and 35% lower than this time last year.

It may have been the low prices which pulled back supply, and this was somewhat corrected this week, with a 10.5¢ rise in the Eastern Young Cattle Indicator (EYCI) to 461¢/kg cwt on Thursday (Figure 3).

The weaker Aussie dollar gave export prices a bit of a boost this week. The 90CL Frozen Cow managed to gain 5¢ to hit 580¢/kg swt despite a small decline in US values.

Finished cattle markets have managed to maintain their ground at a solid premium to store cattle prices. Even export feeder cattle are still around 300¢, well above their domestic counterparts at 259¢/kg lwt.

What does it mean/next week?:

There are only so many cattle that can be soaked up by wet parts of Victoria and South East SA, but they will offer some demand for the next month or so if it keeps raining.  The rain in Northern NSW should see some tightening in supply, as growers wait to see if it’s going to be followed up. There should be a little bit of price upside, with the limit likely to be 500¢ for now. More widespread rain would obviously change this.

Declining saleyard cattle volumes this week were not able to provide a floor to price movements for younger cattle with the Eastern Young Cattle Indicator (EYCI) extending its losses another 2.5% to close yesterday at 450.5¢/kg cwt.  

Surging feed grain prices are also taking the sting out of feedlot buyer appetites to see Feeder Steer prices ease 2.2% across Eastern saleyards to 260.4¢/kg live weight. Trade steers and medium cows were relatively unchanged on the week but healthy processor margins and a dearth of heavier stock saw finished lines well supported, with Heavy Steers up 6.8% to close at 281.8¢/kg lwt (Table 1.)

Across the Eastern seaboard, cattle yarding levels eased 16% to dip back under 50,000 head and creep below the seasonal weekly average for the first time in five weeks (Figure 2.) The retraction in supply at the saleyard was not enough to inspire price gains for all reported categories of cattle.

This suggests a distinct lack of appetite from restocker and feedlot buyers at the moment. This is unsurprising given the updated BOM outlook for a much drier than normal Spring and the prospect of an El Nino forming later this season which has increased to a 70% chance – according to the US-based National Oceanic and Atmospheric Administration (NOAA).

In offshore markets, the 90CL frozen cow indicator continues to trend sideways, sitting at around the 575¢/kg CIF region. Historically, grinding beef prices in the US tend to soften as they move away from their grilling season, so the 90CL may hit a few headwinds as we move into September (Figure 3).

What does it mean/next week?

A softening of the 90CL could open up more downside in the EYCI in the coming weeks, particularly if the BOM forecast for limited September rain across the East coast comes to fruition. Certainly, its Groundhog Day for the nations rain forecast out to next week. Falls in excess of 5-10mm are limited to the coastal fringe of Victoria and southern WA, yet again.

The little rally for the Eastern Young Cattle Indicator (EYCI) is well and truly over. The dry weather concerns have taken over and are seeing the downtrend resume. Interestingly, yardings were also very low, which means demand is likely the issue.

After holding on at around 500¢ for most of July, August has seen the rug pulled from under the EYCI. This week there was a 15¢ decline, taking the EYCI to a new three year low of 462.5¢/kg cwt (Figure 1).  Growers were already unimpressed with prices, as yardings have fallen to their lowest full week level for the year (Figure 2).

It’s not unusual for cattle supply to be weak at this time of year, but demand is usually starting to ramp up. Spring growth prospects normally see strong demand for young cattle in August, but the lack of grass and expensive grain has seen that demand evaporate this year.

Not all cattle prices are weak. The most expensive cattle category in saleyards thisweek was Victorian Heavy Steer, which gained 32¢ to hit 546¢/kg cwt. Obviously, demand for finished cattle in general and grass finished cattle in particular, remains very strong.

Cow prices on the other hand, tanked. In Victoria the Cow indicator lost 51¢ to 351¢/kg cwt, now lagging behind NSW (359¢) and Queensland (378¢). Over the hooks values are now better than saleyards, but this might change next week.

In the west things still look reasonably good. The WYCI is maintaining its strength at 534¢/kg cwt, while Cows are at a strong premium to the east at 214¢/kg lwt.

What does it mean/next week?:

Unless you’re within 150km of Australia’s southern coast or the southern end of the Great Dividing Range, the rainfall forecast remains disappointing. The good news is some southern crops and pastures will get a boost over the coming week, so there might be some fodder about come spring and summer.  The trick will be working out whether it’s better used finishing cattle or if it’s better to sell.

An unfriendly rainfall forecast from the Bureau of Meteorology (BOM) for August has seen a lift in cattle numbers at the sale yard. Most notably, NSW and Queensland have seen cattle prices hit the skids again this week.

The BOM are forecasting incredibly low chances of the rainfall over August getting above average seasonal levels, particularly across NSW (Figure 1). Indeed, nearly all the country faces an abnormally dry finish to the winter and the extended three-month forecast window to October doesn’t provide much relief either.

There are pastoral zones that rely heavily on late winter/early spring rains to set up their pasture levels to carry them over summer and it looks like this year the rain is going to fail them. This appears to have prompted a run of cattle brought to the sale yard this week across the East coast. Throughput numbers surged above the upper end of the normal seasonal range that could be expected for this time of the year (Figure 2).

In Queensland, weekly cattle throughput is running 56% above the five-year average and in NSW cattle yardings are 28% above the normal levels. This has combined to put total East coast throughput levels above 61,000 head on the week to sit nearly 30% above the seasonal average.

The impact of the higher sale yard numbers is putting pressure on prices for most categories of cattle this week (Table 1). The Eastern Young Cattle Indicator (EYCI) was off 4.3% to close at 477.25¢/kg, which is mirroring most other categories of cattle. Medium steers across the east coast were the only category to sustain a price gain, up 4.6% to 264.6¢/kg live weight.

In offshore markets, the 90CL frozen cow indicator remains reasonably steady at 572.8¢/kg CIF. Higher domestic US beef volumes offset by lower NZ and Australian imported beef levels have seen prices trek sideways.

What does it mean/next week?

It’s getting tiresome sitting in the office looking at the next week’s rainfall forecast and seeing the same old picture of meagre offerings around the coastal fringes of Victoria and WA. I can’t imagine the despair on farms further inland, particularly in NSW. With little rainfall on the horizon, it seems consolidation to a weaker bias is the order of the day for cattle prices into next week.

Cattle prices managed to hold their ground this week, which is not unusual for this time of year. There are interesting figures for some categories, notably cattle with weight, as they are now more expensive than this time last year.

The Eastern Young Cattle Indicator (EYCI) held steady this week, holding on at 497¢/kg cwt and sitting 86¢ below the same time last year (Figure 1). Demand for light young cattle is vastly weaker than this time last year and this is keeping the EYCI at or around the 500¢ mark. We can see in Figure 1 that this level was reached in 2017, but only briefly in October.

The NSW Heavy Steer spent its second week above the 2017 price (Figure 2).  Demand for heavy slaughter cattle remains strong, and supply is obviously hard to find, especially for grassfed cattle, as there simply is very little grass out there.

Export Feeder Cattle are also finding plenty of strength, with the Medium-Fed Feeder sitting this week at 340¢/kg lwt (Figure 3). The Medium-Fed Feeder had gained 12% since the start of the year and is now just 5¢ below this time last year.

It is also hard to get weight into cattle for feedlot weights at the moment, hence the very strong prices for heavier feeders.

Export prices, as represented by the 90CL Frozen Cow export price, continue to tick a bit higher this week. The 90CL sits at 579¢/kg swt, 32¢ below the same time last year, so we could even say Heavy Steers are priced better than this time last year.

What does it mean/next week?:

The forecast suggests we’re in for another dry week for NSW and Queensland and as such, there will be little impetus for a rise in the EYCI. Higher rainfall areas of Victoria and SA are receiving something of a normal season and will likely be able to supply cattle as normal this year. Whether the demand for weaner cattle is there at the end of the year will obviously depend on rainfall in the north.