Tag: Cattle

It’s a rare thing for cattle prices to fall in June

Posted on by Caitlin Dearden

Here’s a quiz question. When was the last time the Eastern Young Cattle Indicator (EYCI) finished June lower than it started? You’ll have to read the article to find out….

Young cattle markets continued to slide this week, the EYCI dropped another 12¢ to finish the week, and the month at 621¢/kg cwt. Dry weather and historically high prices appear to be driving cattle to market as a time when supply is usually tightening.

Nothing exceptional is happening with cattle yardings, they were down a touch this week, and largely in line with the same week of the last two years. Cattle slaughter is doing strange things however. In the week ending last Friday, east coast cattle slaughter reached a peak for 2017, setting a 7 month high.

Figure 1 shows MLA’s weekly cattle slaughter figures hitting 137,019 head, 7% higher than the same week last year. It was also the first time weekly slaughter had been higher than the previous year since this exact week back in 2015.

If something sounds familiar, but backwards, it’s because we have been banging on in recent weeks about prices falling below the same time last year for the first time. It was the EYCI’s turn this week (figure 2), posting a lower price than the same week in the previous year for the first time since March 2014.

It’s always a nice fit to see stronger supply than last year equating to weaker prices. It tells us demand is relatively steady, with price being governed by supply.

The week ahead

The answer to the question is given away in figure 2. In 2011 the EYCI finished June lower than it started, by 24¢. This year it was 34¢. It also happened in 2003, so that’s 3 out of 18 years cattle prices have fallen in June. It’s not a regular occurrence. The good news for cattle producers is that in 2011 prices levelled out, but figure 3 shows this might just be the start of the slide.

Queensland outshines NSW

Posted on by Caitlin Dearden

A good recovery staged by Queensland across the board, while NSW disappoints… no I’m not talking about the State of Origin – although the phrase fits there too! Actually, it’s the cattle market this week. Despite the national market indicators posting largely flat results, with weekly moves of less than 2% either way some state based indicators saw more substantial action.

The headline Eastern Young Cattle Indicator (EYCI) mirroring the national saleyard indicators with a minor retracement of 1.3% to close at 633.25¢/kg cwt, yardings of EYCI cattle up 22% on last week a potential reason for the softer prices. In contrast, young cattle price in WA recording an impressive 4.5% gain to close at 615¢/kg cwt and the key export indicator, the 90CL frozen cow relatively flat on the week, dropping just 1¢ to 646.8¢/kg CIF – figure 1.

Big winners in Queensland (other than the Cane toads) were Trade Steers, with a 13% lift to 336¢/kg lwt. The remaining QLD indicators up too (0.5-4.5% increases) with the exception of Medium Cows at 214¢/kg lwt, a fall of 1.6%. NSW saleyard indicators all softer this week, with falls ranging from 1-3%. NSW Medium Steers showing the biggest live weight percentage price drops, down 2.8% to 298¢/kg. A bit of a mixed bag for Victoria, with Feeder Steers down 3% to 325¢/kg lwt and Medium Steers up 5.7% to 315¢/kg.

Increased weekly throughput a potential reason for the broad price falls in NSW with yardings up 76% on last week and 29% above the long-term average for this time of year to see over 23,000 head change hands – figure 2. Perhaps the extended dry spell is starting to have an impact on supply and effecting the normal seasonal winter price rally. In case you missed it, Thursdays analysis piece on Mecardo takes a look at the potential impact of continued dry weather event and is worth a read.

The week ahead

The rainfall forecast for the week ahead showing some much-needed moisture to SA and lighter falls to the much of the South, but most of the decent stuff concentrated in the Tasman Sea. It is unlikely these falls are going to put a rocket up cattle prices this week but might be enough to continue to encourage consolidation at current levels. Although I’m Melbourne born maroon blood flows through my veins so eyes focused on the final State of Origin in just over a fortnight to see if the Toads can stage another upset.

What to expect if it stays dry

Posted on by Caitlin Dearden

Whether or not you believe the Bureau of Meteorology (BOM) three month forecast, there is always the chance the current dry spell could continue. Dry winter’s and springs are not great for cattle prices, but given the current historically strong values, how bad could it get?

The usual impacts of a dry winter and spring are relatively predictable. Cattle producers usually hold out on selling cattle until past the point of no return, while grain prices inevitably rise. Come mid spring there is a rush to offload stock, while demand has weakened, leaving prices in freefall.

To work out where prices might end up, we can take a look historical slaughter during dry times, and associated prices. Obviously fundamental price levels have changed somewhat since the most recent dry spring, but we can try and account for this and come up with a base level for cattle prices.

The 2005 and 2006 seasons are a reasonable template for the market to follow. In 2005 cattle markets reached record highs on the back of strong demand, and a herd rebuild restricting supply. The following year saw cattle supply track in much the same way, before diverging in mid-August (figure 1).

For the last five months of 2006, slaughter was up 16.5% on 2005 levels. The impact on price was dramatic. The Eastern Young Cattle Indicator (EYCI) peaked in mid-August, and as the dry set in, subsequently fell 25.1% to bottom out twice, in October and December.

We can’t really use a 25% fall as the benchmark for price declines in a dry winter or spring. But we can use the 90CL price, and the discount the EYCI reaches, to estimate how low prices might go. Figure 3 shows the long term EYCI spread to the 90CL Frozen Cow Indicator. Before the massive discounts of 2013-2016, the biggest the EYCI got to the 90CL was 20%.

Key points:

  • There are some concerns emerging on around dry weather which could possibly continue.
  • Historically a dry winter and spring has resulted in a strong increase in cattle supply.
  • If the EYCI moves to a historical dry winter/spring discount, values could fall by 130-150¢.

What does this mean?

Figure 3 shows a few dry winter/spring periods when the EYCI has fallen relative to the 90CL indicator. Currently the EYCI is basically at parity with the 90CL price, and a 20% fall would shave 130¢ off the current value. Based on the current 90CL price of 648¢/kg, a 20% discount would give an EYCI of 518¢/kg cwt.

If the EYCI falls into the low 500¢ it would be the weakest price in two years. There is also a chance the 90CL could fall, which would obviously mean cattle prices could weaken further.

It could rain, and cattle prices could hold on to current strong values, but if the rain holds off cattle prices will fall significantly. This could be good enough reason for some to take the money on offer at the moment.

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Retail beef has found a peak

Posted on by Caitlin Dearden

It doesn’t matter how tight cattle supply is, beef still lies on a demand curve, where consumers will eat less beef as prices rise. While Australian beef prices are largely governed by export markets, the domestic consumer is still our largest single market for beef. This week we take a look at the latest retail meat values, and what this might mean for cattle prices.

The Australian Bureau of Statistics (ABS) recently released their retail meat price indices, which Meat and Livestock Australia (MLA) convert to average retail values for the quarter. Figure 1 shows the latest retail meat prices, which shows beef and lamb prices easing marginally.

Retail beef prices peaked in the December quarter, hitting 1939¢/kg retail weight, but eased 1% in the March quarter, to sit at 1920¢ (figure 1). Compared to its major substitute, lamb, beef remains at a strong, but not unusual premium. For the last 18 months beef has ranged between a 22 and 25% premium to lamb at a retail level, which is the highest level in 9 years.

There is precedent for beef to move to a stronger premium to lamb, which has been as high as 38% back in 2000. Similarly, we have recently seen beef at just a 4% premium to lamb, back in 2011 when lamb prices has a serious rally.

Retail chicken prices gained 1% in the March quarter, but remains exceptionally cheap compared to beef, and to a less extent lamb. In the September 16 quarter, beef was at a 265% premium to chicken, and this has eased marginally to 257% in the March quarter. Chicken continues to take market share from the more expensive meats, but it’s promising to see retail beef prices managing to maintain high premiums.

Figure 3 shows that easing saleyard prices in the March quarter might have helped retail prices ease a little. However, looking at indices of the retail and saleyard prices, we can see that saleyard prices remain expensive relative to retail values over the long term.

Key points:

  • Retail beef prices eased marginally in the March quarter, but remain historically high relative to other meats.
  • Saleyard cattle prices have fallen further than retail values, which may provide a little support.
  • There is still a lot of room for saleyard price to fall without retail values moving, so there may not be much relief for consumers.

What does this mean?

Beef prices remain expensive relative to other meats at a retail level. Cattle prices remain expensive relative to retail values. This means cattle prices have plenty of room to fall. If saleyard price move back to 25% of the retail price, it puts the trade steer indicator at 480¢/kg cwt.

It seems unlikely retail beef prices will fall in a hurry. Even during the very cheap cattle prices of 2012-13 beef prices only edged lower, so hopefully, for producers, the 450-500¢ level might be the bottom of the range of beef prices over the coming years. Consumers are not likely to get much relief at the checkout however, and export markets will have to soak up any extra supply that comes through.

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Cattle prices worse than last year, but who’s complaining?

Posted on by Caitlin Dearden

It hasn’t happened to the Eastern Young Cattle Indicator (EYCI) yet, but we have a few slaughter categories which have moved below year ago levels. It’s been a while since producers were getting less money than the year before, in fact it’s been three years, but is anyone complaining?

It’s been nearly two months of cattle prices tracking sideways, as just as the market seemed to avoid the usual autumn decline, the winter rally is taking it’s time to appear.

Figure 1 shows the Victorian Heavy Steer Indicator, which is a pretty good proxy for slaughter cattle on the east coast. Since 2015 there hasn’t been a week when the Vic Heavy Steer was lower than the previous year. In fact, we had to go back to February and March 2014 to find a time when the Vic heavy steer was lower than the year earlier. At that time the Indictor was at 310-320¢/kg cwt, just 5-10¢ below 2013 values. This week’s price was 557¢/kg cwt.

So is anyone complaining about prices? We can see from figure 1 that producers with heavy steer might be disappointed they didn’t sell a month ago, with the Vic Heavy Steer down 30¢ in that time. This equates to around $105/hd on a 350kg cwt steer, which hurts a bit.

In terms of the trade, if these steers were bought back 18 months ago, the EYCI was 600¢/kg cwt. Convert to live weight and add a bit of basis, and they might have cost around $1,000/hd at 300kg lwt. Selling this week as heavy steers they would have returned $1,950/hd. We’re not sure anyone is complaining about a $950/hd gross margin.

the week ahead

Seasonality suggests cattle prices are due to rally, and Matt’s analysis earlier this week on processor margins suggests there is room for slaughter cattle to begin their winter appreciation. Young cattle prices remain strong, as restocker and feeder demand is still robust enough (figure 2). We might see slaughter cattle rise without young cattle for a start. Although the very dry weather outlook for the next 8 days suggests we might be waiting a bit longer yet.

Cattle remains in a holding pattern

Posted on by Caitlin Dearden

National saleyard indicators tracked sideways this week, with most posting percentage price movements with less than a 2% variance, as slaughter and throughput figures along the East coast remain largely unchanged.

The Eastern Young Cattle Indicator (EYCI) just 1.8% softer to close at 643.25¢/kg cwt. It’s Western cousin a touch heavier with a 2.3% fall to 635¢, while the key beef export benchmark 90CL frozen cow managed a slight 0.9% gain to 652¢/kg CIF – figure 1.

The heavy 123¢ slide in Queensland Trade Steers noted last week was reversed somewhat this week with a 91¢ lift and as suggested in our previous cattle market comment the price volatility in the QLD Trade Steer numbers the result of low throughput levels – figure 2. QLD Trade Steers the only noticeable mover this week with most other state based indicators in a consolidation phase.

The sideways price action demonstrated by most cattle categories somewhat unsurprising given the broadly unchanged weekly slaughter and yardings numbers. East coast slaughter for the week ending 2nd June only 83 lower than the prior period and just shy of 136,000 head. East coast yarding posting a 1.8% gain on the week to see 54,940 head change hands – figure 3.

The week ahead

The eight-day forecast from the Bureau of Meteorology shows a fairly dry outlook for much of the nation with only slight falls, of less than 15mm, to NSW noted. This would suggest a bit more of the same for the coming week with price consolidation the order of the day.

Bullish fundamentals can’t stop trade steer slide in Qld

Posted on by Caitlin Dearden

The fundamental international market news was bullish this week, but markets seemed to focus more on local issues.  Broader indicators managed hold their ground, or even rally a bit, but at the state level there were some heavy price declines.

After a brief decline last week, the 90CL export price rebounded this week as tight supply, and expected tighter imported beef drove US buyers to bid up.  While not quite back to the highs of a fortnight ago, the 90CL rallied 8¢ to 645¢/kg swt.

The other bullish fundamental news was the Indian ban on cattle slaughter, which will obviously take some time to play out.  However, there might have been a reaction of sorts from restockers, who were seemingly the only buying group who paid more.

Restockers pushed the EYCI higher, as shown in figure 1, it gained 4¢ for the week to hit 655.25¢ a five week high.  Cows also rallied, while heavy steers fell.

The interesting numbers came out of the trade steer market.  Figure 2 shows dramatic falls in Queensland and Victorian trade steer indicators, while NSW held steady.  We don’t yet have the yardings for the indicators, but the heavy falls would suggest there weren’t many trade steers sold this week.  This is partially backed up by just a 15¢ fall in the national indicator.  Much less than the 123¢ and 44¢ falls in Queensland and Victoria.

In WA the Western Young Cattle Indicator (WYCI) gained a couple of cents to sit at 650¢/kg cwt.  Figure 3 shows an interesting convergence.  The EYCI, WYCI and 90CL indicator all sitting between 645 and 655¢.  The last time we saw this was in March 2016.

The week ahead

There is no rain on the forecast for the coming week, which is not great for any market upside.  However, we are now in June, and it’s very rare for the market to fall to far at this time of year, as supply tightens.  As such we might spend a few weeks in a holding pattern, at least until it rains, when we might see a rally.

Sideways action as NSW slaughter peaks

Posted on by Caitlin Dearden

Most national cattle indicators trending sideways this week as East coast throughput and slaughter (from the week prior) are largely unchanged. The Eastern Young Cattle Indicator (EYCI) indicative of the broader market with a mere 0.3% gain to see it close at 651.75¢/kg cwt.

East coast slaughter, for the week ending 19th May, recording a marginally softer result for the week at 132,392 head – figure 1. Most of the East coast states registering a decline in slaughter, although as figure 2 shows NSW slaughter still peaking for the season with 32,268 head recorded. NSW slaughter likely to start the seasonal decline from here though as supply tightens into the Winter period.

East coast weekly cattle yarding numbers further demonstrating the tight season with a marginal move lower to 47,009 head, trending along the very bottom of the “normal” range that could be expected for this time of the year – figure 3. After the recent spike in throughput experienced after the Easter/ANAC day period yarding numbers seem to have well and truly contracted, trending 16.5% below the five-year pattern, and 21% under the 2016 pattern for this week in the season.

Most national categories of cattle price movements were pretty uneventful this week, although Medium Steers dragged down by SA figures. The National Medium Steer closing the week 4.6% softer to 292¢/kg lwt, Queensland Medium Steers unchanged at 286¢ and NSW/Victorian Medium Steers only 2-3% softer. The killer punch for the national figures coming from SA Medium Steers, down 14.9% to 294¢/kg lwt.

The week ahead

Beef export prices took a bit of a breather over the week with the 90CL Frozen Cow down 2.4% to 633.3¢/kg CIF and a relatively dry forecast for most of the country could see cattle prices continue to consolidate this week, even if supply continues to contract in line with the usual Winter pattern.

Some futures cheer for our Heavy Steer

Posted on by Caitlin Dearden

Key points:

  • Annual average price correlations between US Live Cattle and National Heavy Steers is showing that local prices are less overvalued than during 2016
  • The continued rebound in US Live Cattle futures through March/April 2017 has meant that, on a monthly basis, average local Heavy Steer prices are nearing the upper end of the normal range.
  • The Heavy Steer spread to US Live Cattle Futures is currently at a 21% discount, the longer-term average discount is nearer to 35%.

As a follow up to the recent analysis released on the rise in beef export prices providing support for the Eastern States Cattle Indicator (EYCI) we have taken a look at how the recovery in the US Live Cattle futures price has taken some of the pressure off domestic heavy steer prices.

Click here to recap on the beef export price/EYCI article.

Just as there is a reasonably strong correlation between the annual average EYCI price and the annual average 90CL beef export price, the same holds for annual average prices for US Live Cattle and National Heavy Steer prices. Indeed, as highlighted in figure 1, annual price data for both series converted into US¢/kg from 1998 to 2012 demonstrates a very close relationship. Clearly, the poor seasonal conditions and high turnoff locally for cattle during 2013-15 had an impact on local Heavy Steers prices, remaining in undervalued territory for much of the period (red dots below the line of best fit).

In contrast, the improved season since midway through 2015 saw local prices return to more normal levels and then drift towards overvalued territory as rainfall improved and the focus turned to the herd rebuild. This situation can be seen more clearly by taking a look at the monthly average price comparisons between US Live Cattle and Heavy Steers – figure 2. Interestingly, recent improvements in US Live Cattle prices during March/April 2017 have meant that local Heavy Steer prices are much more in line with what could be considered normal long term levels, as identified by the green dots for the 2017 season moving closer toward the line of best fit.

Looking at it another way, we can track the historic movement of the spread, in percentage terms, between National Heavy Steers to US Live Cattle futures – figure 3. As shown on the chart, the longer-term average spread since 1998 for this series has been around the 35% discount level, spending 70% of the time ranging between a 23-47% discount (green band). Clearly the 2013-15 turnoff saw the spread widen towards the lower end of the 95% range nearer to a 60% discount (red dotted lines) and the improved conditions/tight local supply scenario experienced through 2016 saw the spread spike briefly into premium territory, when US Live Cattle tested under 95US¢/lb during October 2016.

What does this mean?

Currently the rebound in US Live Cattle Futures has seen the discount spread return to just above the top of the “normal” range at around 21% discount. While still some way off from the longer-term average spread discount of 35%, it has taken some of the topside pressure off local Heavy Steer prices that would have been evident when the spread was sitting at a premium during late 2016.

How far the winter peak?

Posted on by Caitlin Dearden

Cattle prices received a welcome bounce this week as yardings declined from their post short week lows.  This is following a week when slaughter reached a 2017 high.  It looks like we might have seen the May low, with a question of how far is the winter peak?

Figure 1 shows that east coast cattle slaughter reached its strongest level since December in the week ending the 12th of May. It’s interesting that this is around the time cattle slaughter traditionally peaks, as cattle out of Queensland bolster stocks.

This week it was a case of tightening supply, with east coast cattle yardings falling 20% as lower prices saw growers hold stock back.  Yardings were, however, still stronger they have been for much of Autumn.

The Eastern Young Cattle Indicator had a rally on the back of tighter supply.  The EYCI gained 16¢ for the week, getting back up to 650¢/kg cwt.  Figure 3 shows us that while we had to put the ten year average on a different axis, the EYCI does traditionally rise from this week through to the end of August.

While it is difficult to envision the EYCI getting back to 700¢ this winter, the 90CL export price is doing the right thing, having rallied to 650¢/kg cwt.  In fact, the EYCI and 90CL are back at level pegging for the first time since this around this last year.

The week ahead

If the Autumn low was 634¢ it bodes pretty well for cattle producers over the next three months.  A standard 10% winter rally will take the EYCI through 700¢.  The forecast rain for the next few days might see the rally come sooner rather than later.