In the global beef market, the US is a major player. Being both one of our biggest customers for export beef, along with one of our major competitors, US prices help drive values in the Australian market.
At the moment, high feed costs here and cheap ones there are seeing a strange spread in price comparisons.
It took eight months for CME live cattle futures to rally 30 per cent from the two-year lows seen in the last northern summer (Figure 1).
In the last two months, all of that rally has been wiped off as rising feedlot inventories and trade uncertainty has forced live cattle futures back towards support levels.
Feeder cattle futures have also fallen, but not to the same extent as live cattle. Expect feeder prices to fall a bit further, given rising corn prices, which would usually see feeder prices head back towards the finished cattle price.
Live cattle futures are settled on grain-fed steers, and as such, are roughly equivalent to the 100 day Grain-fed Steer Indicator here. The Australian price has been edging ahead of US prices in the last fortnight (Figure 2).
While the 100 day grain-fed steer price has moved higher, it has been the falling US price which has been the driver.
The comparison between US feeder cattle futures and the Eastern Young Cattle Indicator (EYCI) is at the opposite end of the spread spectrum.
The last year and a half has seen the EYCI fall, while in our terms, US feeder cattle futures have been rising.
Expensive feed here has depressed young cattle prices, while in the US, feed is relatively cheap and lotfeeders are paying more for young cattle.
What does this mean?
On the finished cattle front, further upside looks limited. With our grain-fed beef competing with US beef in Japan and Korea, we can see that the Australian premium can only go so far.
The 100 day grain-fed price is currently at a 45 premium to US live cattle futures. Back in 2017, the premium got to 90, so in theory, prices could get a little stronger.
For young cattle, there is plenty of upside. The Feeder Cattle/EYCI spread is currently close to its widest level in five years, but for the EYCI to close the gap, feed will have to get cheaper here.