Market surge highlights EYCI shortcomings

Market surge highlights EYCI shortcomings

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The EYCI is not a complete reflection of the state of the cattle market.

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FOR the past two weeks AuctionsPlus (A+) has stolen the limelight with lightweight young steers charging through the 400c/kg LW barrier and the heifers not far behind.

In fact latest results from last Friday have both steers and heifers knocking on the door of 500c/kg.

But if you thought these results are reflected in the Eastern Young Cattle Indicator, which has jumped by 12 per cent to 579.75c/kg DW in the past fortnight, you would be misguided.

While A+ send their results through to MLA, a check with the latter on Monday revealed that the A+ details do not come into the EYCI calculation.

If they did, you could reasonably expect the EYCI to be higher than where it is currently as the rise in lightweight cattle prices seems disproportionally higher than the rest of the market.

The biggest issue is that lightweight cattle under 200kg are simply not included in the EYCI calculation.

Another problem is that the A+ format of livestock description is not exactly compatible with the saleyard market reporting system from which the EYCI data is drawn.

In saleyards, the market reporter's job is to split the yarding into discrete classes of cattle defined by age/gender-category, weight range, fatness etc. and record the prices achieved within those parameters.

In A+ the assessor's task is to describe a line of cattle which may span a number of these parameters. For example, quite often fatness may span two or three fat scores.

If the description includes Fat Score 1 as would be expected with lightweight weaners, they would be ineligible as the EYCI starts at Fat Score 2.

What value therefore a price indicator that excludes the market leading class of cattle within the sector it is meant to represent?

To answer that it is necessary to go back to the foundations of EYCI.

The EYCI was developed almost 25 years ago and very much intended at that time to be an indicator of the general Australian cattle market. It was also the basis of the MLA/SFE Cattle Futures contract which was listed in August 2002 on the then Sydney Futures Exchange (now ASX).

EYCI ISSUES: Lightweight cattle under 200kg are not included in the EYCI calculation, and the A+ format of livestock description is not compatible with the saleyard market reporting system from which the EYCI data is drawn.

EYCI ISSUES: Lightweight cattle under 200kg are not included in the EYCI calculation, and the A+ format of livestock description is not compatible with the saleyard market reporting system from which the EYCI data is drawn.

From the outset, the omission of bullocks and cows in a general cattle market indicator was something many observers found hard to understand.

Proponents of EYCI argued that young cattle were chosen because when producers sold older slaughter cattle and replaced them with young cattle, the profit from the sale influenced the price they were willing to pay for the replacement young cattle.

Thus young cattle were supposedly a guide to the general state of the market.

For a variety of reasons, including the obvious and overwhelming impact of season, this has always been a tenuous and unconvincing argument.

There are instances of extreme disconnect between store and fat markets which have seen them travelling in opposite directions. The years 2014 and 2016 were classic examples.

As to the Cattle Futures Contract, it failed to attract any real interest as a risk management tool and was delisted in 2009.

It is simply a case that if it ever was a general indicator of the wider cattle market it no longer fits that description now.

Any connect between EYCI and the slaughter market is minimal so it makes no sense for the EYCI to be reported in the language of the slaughter market (i.e. c/kg dressed weight). The language of the store cattle market is unequivocally c/kg live weight and that should be how EYCI is reported.

However that is not to say that the EYCI no longer serves a useful purpose.

Quite the opposite, in fact, as the EYCI is a valuable indicator of the weaner/yearling component of the store cattle market but it could and should be improved with some tweaking and updating.

Firstly, the EYCI is now overwhelmingly influenced by feeder and restocker activity.

The number of processor transactions in the data sets is minimal as evidenced by the Wagga sale on Monday where all of the 1642 yearling steers reported went to store buyers.

Of the 1469 yearling heifers, processors bought just 57 head.

Any connect between EYCI and the slaughter market is minimal so it makes no sense for the EYCI to be reported in the language of the slaughter market (i.e. c/kg dressed weight). The language of the store cattle market is unequivocally c/kg live weight and that should be how EYCI is reported.

Other modifications such as getting A+ and weaner-sale cattle into the EYCI calculation have long been needed and this column expressed the hope in 2016 that the Australian Beef Language White Paper Review might be the catalyst for these changes.

After all, the livestock language was originally developed in the formative years of AusMeat in the 1980s and hasn't been touched since despite major changes in the beef industry dynamic. AusMeat abandoned stewardship of the livestock language in 1998.

In 2016 the White Paper recommended "That an expert group review the Bovine Livestock Language with the aim of creating a section within the existing language standardising terminology and ensuring common description across all trading and production categories including registered and commercial cattle sold by live export or as domestic store or finished cattle. This review will standardise the language used by all parties so that carcase and chiller assessment data can be linked to genetic evaluation programs."

Fifteen months later in April 2017, the peak councils who had commissioned the White Paper in the first place concurred with the authors and said, "This recommendation is supported by industry. Full industry representation is required to work through this recommendation. MLA will coordinate the commencement of a working group and will link in with the Objective Measurement Rural R&D for Profit program of work."

Almost three years have since passed and no sign of any progress.

But it is never too late to start.

Last roll up for Winchcombe Carson

FORTY years on from the Dalgety takeover, a final Queensland get-together of old Winchcombe staff members is planned for Friday, March 6 at Toowoomba Golf Club.

A similar NSW reunion late last year attracted a great roll up.

Contact Denis McGrath 0435855144, Bill Pitts 0421949234 or Ray Lewis 0488778684.

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