Young cattle prices still haven't hit record in real terms

Young cattle prices still haven't hit record in real terms


An 850c EYCI 'not unheard of' and, in fact, now on the cards


SOARING young cattle prices still haven't hit the highs of days gone by in real terms, which means an Eastern Young Cattle Indicator up around 850 cents per kilogram carcase weight this season would not be unheard of.

It would have to move past a whopping 938c/kg this season to set a record in real prices.

While the EYCI has only been around since 1996, cattle market information specialists Mecardo have created a proxy indicator, taking into account inflation adjustments, running back to 1953 in order to see where current young cattle prices sit comparative to the long term.

The long-term average trend has been around the 530c/kg level and the range 380 to 700c/kg, which means the current market is a solid 62c above the normal.

However, there were several times from 1959 through to 1980 where prices hit the current-day equivalent of the 800c mark.

The peak was in September 1960, when the nominal price was 67.9c/kg which equates to 938.3c/kg today.

Mecardo's Matt Dalgleish said the caveat to the EYCI going into the 850c-plus range this year was, of course, coronavirus.

The United States live cattle price had now crashed on the back of virus concerns, he reported.

February beef export data shows Australian shipments to China were still 46 per cent higher than the five-year trend for that month but there was an impact with a 20pc softening from January.

Still, it's not panic stations yet, Mr Dalgleish said.

"On the positive side for Australia, the tight supply situation will provide insulation to livestock prices at the saleyard despite what happens to the meat price," he said.

And rain will support restocker activity.

EYCI tipped to hit 865c

Mecardo is now predicting an annual average EYCI of 640c/kg for 2020.

That doesn't take into account a much wetter autumn and winter. If that happens, Mecardo believes the average could move up to the 690c level. That would give a potential peak of 865 and trough of 550c/kg.

Mecardo's modelling takes into account the Australian dollar, global cattle prices and the live cattle futures market, a climate factor and feed costs.

The organisation's heavy steer forecast model is showing tight supply and a slaughter forecast that would support stronger finished cattle prices for 2020, with an annual average of 625c/kg and potential range 475 to 700c in the depths of winter.

Buyer activity

In presenting an overview of reading the restocker market in a webinar supported by Meat & Livestock Australia and run by Holmes and Sackett last night, Mr Dalgleish highlighted interesting buyer activity trends through the run-up of 2020 cattle prices.

NUMBERS GAME: Mecardo analyst Matt Dalgleish.

NUMBERS GAME: Mecardo analyst Matt Dalgleish.

The January rise was feedlot driven. Lotfeeders were paying an average 20c/kg more than restockers, who averaged 568c/kg, he reported.

By February, restockers had well and truly taken over paying the higher premiums. They were averaging 750c/kg, which was a similar level to what occurred during the peak prices in 2016, when the previous EYCI record was set.

In comparison, feedlots have been paying around 710c since February.

The big contrast between 2016 and now is in processor activity, Mr Dalgleish said.

In 2016, processors were paying a 690c average, now they are only averaging 640c.

"The appetite for processor buying has diminished. Given what's happening in global meat markets that is to be expected," Mr Dalgleish said.

"Processors are trying to hold onto coin because they know very tight supply and hard times are coming."

Southern wait

Southern restockers have not fully engaged to the same level as their northern counterparts.

Northern restockers have come up with much higher premiums nearer to 7pc for EYCI-style cattle, compared to the 1pc premium southern producers are sitting at.

Mecardo utilises Dubbo as the dividing line between north and south.

"In the south, restockers appear to be wanting more confirmation of a good autumn break and if that comes, it could be the next catalyst for upward pressure on young cattle prices," Mr Dalgleish said.

Still money in young cattle

Mecardo have also put together a matrix looking at dollar-per-head profit and loss potential in the grassfed cattle trade at the moment.

It shows buying young cattle at more than 800c/kg could still potentially turn a profit in excess of $150 over a year, given forecast finished cattle prices.

The matrix runs scenarios in terms of buy and sell price looking at buying in 350kg young cattle and turning them off at a sale weight of 550kg.

It factors in $200 in costs per animal to cover the likes of vet bills and transport during the time it's being backgrounded.

At a purchase price of 430 to 440c/kg liveweight and a sale price of 325 to 350c/kg liveweight - which would be right in the middle of the annual average price forecasted for heavy steers for next season - the matrix shows positive margins of $185 to $220 for a yearly trade after costs.

"A 430c purchase price equates to a carcase weight price of 795c/kg, so assuming the finished cattle market can hold up, and certainly the models are suggesting it will into next season, there is no reason why you can't buy young cattle up to 830c/kg in a grassfed system and potentially still make in excess of $150 profit on the trade," Mr Dalgleish said.

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