Category: Cattle

Increasing cattle slaughter and yarding levels heading into early spring have seen cattle prices continue to soften this week for most categories. Further weighing on the general sentiment was the updated three-month rainfall outlook from the Bureau of Meteorology which points to a long dry period ahead for much of the country.

In the last fortnight, east coast cattle slaughter has lifted above the average seasonal pattern to trend 5% over the average for this time in the year (Figure 1). While we aren’t culling as many cattle in absolute terms than we did during 2015, as a percentage of the herd we are slaughtering the most cattle since then.

In 2015 cattle slaughter represented 32.9% of the herd. In the period from 2016 to 2018 the ratio of slaughter to herd size remained below 30%. However, if we stay on target to reach MLA’s forecast slaughter of 8.1 million head by the end of 2019 this will equate to around 31.1% of the herd, the highest since 2015.

East coast cattle throughput has lifted too in recent weeks, to see it break back out above the normal seasonal range expected for this time in the season (Figure 2). Elevated yardings has been most noticeable in Queensland and NSW over the last month with throughput running 28% and 22% above trend in these regions, respectively.

The weight of increased supply sent cattle prices southward along the east coast. The Eastern Young Cattle Indicator (EYCI) eased 0.8% to rest back below 500¢/kg cwt. East Coast Heavy Steers are feeling the pressure too, taking off 3.6% to close at 311¢/kg lwt. The bigger fall was reserved for East Coast Medium Steer though, with a 7.8% drop noted, to finish the week at 280¢/kg lwt.

In offshore markets, the 90CL frozen cow indicator received a boost this week as disruptions to the supply chain, caused by a fire destroying a large meat processor plant in the USA, sent the price of manufactured meat higher. The 90CL reached its highest level since September 2015 to finish the week at 715¢/kg CIF (Figure 3).

Next week

The short-term picture for domestic cattle prices remains unchanged from last week’s summary. The combination of robust offshore demand for beef and the tight local supply of quality finished cattle will keep prices supported on the heavier end of the spectrum.

Despite rising slaughter rates, and more dry weather, the Eastern Young Cattle Indicator (EYCI) managed to find some support at 500¢.  The demand from export markets remains rampant, with slaughter cattle prices hitting new peaks.

The fall in the EYCI halted this week, with young cattle prices easing 4¢ to stall at 503.75¢/kg cwt.  Some of the heavy fall last week can be put down to stronger supply.  Figure 1 shows a 6% rise in east coast cattle slaughter, and a 5% lift on the same time last year.  The lift in supply was concentrated in Queensland, where a 12% rise for the week carried east coast slaughter higher.

The biggest move we saw in cattle markets this week was the Heavy Steer Indicator in NSW.  Figure 2 shows a 108¢ jump on last week, and 33¢ on a fortnight ago, to hit a three year high of 633¢/kg cwt.  Heavy Steer in NSW have only been more expensive at this time in 2016, and strong export prices are driving the rise.

Figure 3 shows export prices continue to rise, this week thanks to an increase in the US value.  Figure 3 shows how much the lower Aussie dollar has done for export values, and therefore cattle prices.  The 90CL price in US terms is at the top of the three year range, but in our terms it is approaching record values.  This week’s price of 715¢/kg swt is a new four year high, and just 30¢ off an all time record.

What does it mean/next week?:

The latest Bureau of Meteorology (BOM) three month outlook (figure 4), released yesterday, doesn’t hold a lot of joy for cattle producers.  With only parts of WA and Tasmania with a better than 50% change of stronger than median rainfall, it looks like spring might again fail for many.

The forecast doesn’t mean it’s not going to rain, but the chances of good rains are low.  This suggests pressure on young cattle, and support for finished cattle is likely to continue for the rest of the year.

The updated Mecardo processor margin model shows that meatworks profitability has continued to soften in recent months for beef processing, reducing by 48% from the peaks achieved in May 2019. However, despite the narrowing, margin processor’s bottom line remains in good shape with the annual average margin sitting over five times higher than last season.

This processor margin model is designed to reflect the general trend in meatworks profitability and should be viewed as a reflection of an average industry participant. Due to the diversity in the scale of operations, internal processes, and supply chain differences across the red meat processing industry, individual meat works profitability will vary from the results demonstrated in this article. Furthermore, input data used in the model can be revised post reporting each month as updated data becomes available.

Figure 1 demonstrates the trend in the processor margin on a monthly basis since 2000. Earlier in the season, we saw margins extend outside the upper boundary of the extreme range beyond $220 per head of cattle processed. Ongoing dry conditions across NSW and southern Queensland have kept the cost of cattle entering meatworks relatively subdued while improving offshore beef prices have helped margins expand.

In the last few months, the processor margin has eased toward the top of the 70% range. Based on the historical monthly margin data, this range demonstrates where the margin has fluctuated for 70% of the time since 2000 and gives an indication of the “normal range” that could be expected to be earned by a processor per animal, which is between a $55 loss to a $130 profit.

A look at the seasonal trend in the processor margin shows that average monthly profit levels have eased toward $145 per beast processed in July after peaking at over $280 during May 2019. The annual average margin for 2019 sits at $195 profit, compared to just $36 per head for the 2018 season – Figure 2.

What does this mean?

A comparison to the 2014 season shows the impact a drier than normal spring and summer can have on processor margins as the annual average margin for the year reached $255.

During 2014 the processor margin continued to improve throughout the latter half of the season peaking at over $385 profit per head in November. The drier than average forecast leading into spring issued by the Bureau of Meteorology last week (Figure 3) should continue to support firm processor margins into the second half of this year.

Key points

• Processor margins have continued to ease in recent months, falling from the May peak over $280 profit per head toward $145 in July.
• For the 2019 season the annual average margin sits at $195, compared to a $36 profit earned during 2018.
• During the last significant drought event in 2014 processor margins reached an annual average profit of $255 per animal processed.

Last week we looked at the Bureau of Meteorology (BOM) spring rainfall forecast and it would seem the market looked at it as well.  Young cattle prices took a dive this week, but finished cattle prices maintained their strength.

Figure 1 shows the Eastern Young Cattle Indicator (EYCI) losing 20¢ this week to hit a seven week low of 508.25¢/kg cwt. EYCI yardings were lower, but the tighter supply didn’t seem to matter, with buyers pulling back. A 52¢ fall in prices at the Roma store sale and a 36¢ decline at Wagga were the main contributors to the fall.

No doubt the forecast for a drier than normal spring across almost all of the east coast, has pulled demand back. It’s not quite as weak as this time last year, but it is heading that way.

Finished cattle price, especially Heavy Steers are holding their strength.  Figure 2 shows both Victorian and Queensland Heavy Steer Indicators are close to three year highs.  Beef export values are very strong, and no doubt seeing strong demand for cattle which are ready for slaughter.

Cow prices are not faring so well, as is often the case in dry times. In Victoria, where there has been some rain, Cows are near two year highs.  In Queensland the Cow Indicator is showing the impacts of the dry, although they defied the trend this week, rising to 416¢/kg cwt.

In the West, cattle prices eased, but remain at a premium to their east coast counterparts.  The WYCI fell 24¢ to 559¢/kg cwt, and is obviously being helped along by continued very strong export prices (Figure 3).

Next week?:

Dry weather in August and September is never good for young cattle prices. With hot weather approaching, a lack of rain saps demand and increases supply.  The question is how far finished cattle prices can get ahead of young cattle.  Victorian Heavy Steers were at more than a 100¢ premium to the EYCI this week.  It is hard to see grass finished supplies improving any time soon.

The first sneak peek at the spring rainfall outlook issued by the Bureau of Meteorology (BOM) yesterday paints a grim picture for cattle producers and you could say it’s a crappy forecast on account of all the brown patches spread across the country.

An elevated chance of a drier than average September through to November is slated for much of the country except for the western WA and Tasmania – Figure 1. Although this is the Bureau’s first glance at the spring outlook, with a more detailed picture to follow at the end of August, it is unlikely to change substantially as their accuracy for spring forecasts is usually moderate to high.

National cattle sale yard indicators responded accordingly this week to the gloomy rainfall forecast with most NLRS reported categories of cattle easing – Figure 2. Heavy steers the only group to buck the trend significantly with the national indicator climbing 4.5% to close at 318¢/kg lwt.

The national heavy steer indicator given a solid boost by NSW heavy steer which managed a 9% lift on the week to finish at 325¢/kg. Although NSW heavy steers aren’t the dearest in the country with the winter rain across much of Victoria helping support heavy steer prices there to see them top the table at 337¢/kg lwt, despite only gaining 1% on the week.

Dry conditions in the northern regions across the east coast continue to have weekly cattle yarding numbers running at elevated levels, above average and outside the upper boundary of the “normal range” for this time in the season – Figure 3.

Higher than average Queensland and NSW cattle yardings are the main drivers of the elevated east coast throughput. Over the last month Queensland sale yards have seen throughput running 34% higher than the five-year trend and NSW are 19% higher.  In contrast, Victorian cattle throughput numbers are sitting 8% below the five-year trend.

Next week

Despite the brown rainfall forecast for the three-month outlook there is some rain scheduled in the coming week for Victoria, Tasmania and the south west coastal tip of WA. Unfortunately, the rain subsides as you cross the Murray, so it won’t really be enough to get the cattle market too inspired. Expect further sideways price movements in the short term

The yearly peak for the Eastern Young Cattle Indicator (EYCI) has drawn out more young cattle, but demand was up to the challenge. With young cattle yardings reaching a four month high, the EYCI managed to hold its strength.

It is unusual for young cattle yardings to hit a high at this time of year but the continued dry and the highest prices for the year, seem to be drawing more to the market. Figure 1 shows EYCI yardings moving just over 20,000 head which is only the second time it has breached this level in August. The last occurrence was in 2015.

The higher yardings failed to dampen prices, with the EYCI remaining at 532¢/kg cwt. Figure 1 shows the EYCI is now 70¢ above the same time last year. Although, it was August when prices bottomed out in 2018.

Southern areas continue to drive the young cattle market but it’s creeping further north. CTLX Carcaor had an average price of 594¢ this week, matching Wagga.

The lower Aussie dollar will no doubt offer some support for cattle prices. Sitting close to a 10 year low, it has pushed the 90CL export price to 710¢/kg swt. This is another four year high for the 90CL, and it looks like it has helped drag the WA Young Cattle Indicator higher.

Figure 3 shows the WYCI has made a move higher but lost some ground this week. Both the EYCI and WYCI have a long way to go to meet the export value.

Next week:

There is more winter rain coming for southern areas with this week’s cold snap. This will help to maintain tight supply and strong demand in those zones. Still no rain for the north, so the flow of cattle out of those areas is likely to continue.

Finished cattle should find support from the lower Aussie dollar and subsequent strong export values. Given the season it’s hard to see too much downside for finished cattle until well into spring. 

A recent discussion with some livestock industry representatives this week suggested that in the southern regions, at least, restocker buyers were becoming more active. Certainly, the Eastern Young Cattle Indicator (EYCI) continues its grind higher closing at 532.5¢/kg cwt yesterday, up 1¢ on the week. But is it being supported across the eastern seaboard or by southern restockers?

Analysis of the spread southern restockers are paying for EYCI eligible cattle up until the close of trading last Friday showed that southern restockers had been paying better than average premium spreads to the EYCI for the first few weeks of July, but it had narrowed to sit underneath the seasonal average trend in recent times – Figure 1.

Indeed, as of last Friday the southern restocker spread to the EYCI sat at a premium of 0.5% prem compared to the five-year seasonal average for this time of the year at a premium of 2%. Not indicative of southern restockers becoming too enthusiastic about the market, but decidedly better than the 8.8% discount spread that they were paying at this time last season.

In contrast, Northern restockers are yet to really get involved this season with the spread to the EYCI as of last Fridays closing prices sitting at a 4.8% discount compared to a 0.2% premium spread as per the five-year average spread pattern, Figure 2. At least, as a consolation the northern restocker spread has moved above the trend set during the 2018 season, which was running at a 6.8% discount to the EYCI this time last year.

National cattle prices at the sale yard reflecting the tepid restocker interest of late with Restocker Yearling Steer prices lifting 3.5¢ on the week to close at 280.3¢/kg lwt. Medium steer the big winner on the week across the national price averages posting a 21.8¢ gain to finish at 293.5¢/kg lwt – Figure 3.

Next week

Another week of limited rainfall is on the horizon. Coastal south western WA and southern Victorian regions are slated for 10-25 mm but not anything for where it’s really needed. This is going to continue to constrain restockers further north and put a cap on any price gains beyond what the tight winter supply scenario can offer.

There has been more rain in the far south and nothing to speak of in the north, yet the Eastern Young Cattle Indicator (EYCI) continues to climb.  This week we saw the EYCI hit a new 2019 high, and tip just past the five-year average.

The south is definitely helping to push the market, with Wagga the most expensive in the EYCI this week at 615.75¢/kg cwt. Although Dubbo did bolster the numbers, with 12% of the market, at 582¢.  As with most weeks, the Roma store was the biggest market, making up 18.6% of the EYCI, but we couldn’t find the price.

It has been over seven months since the EYCI was above 525¢, with early November being the last time. Despite the continued dry, the EYCI seems to be following more of a ‘normal’ seasonal trend.  This involves rising in winter as supply tightens and demand improves.

The improvement in demand is coming from southern growers, who are becoming more confident of spring growth and some replenishing of fodder supplies. We have been harping on lately about the high slaughter rates in Victoria, so perhaps some demand is coming from those looking to restock.

Over in the west, the Western Young Cattle Indicator (WYCI) slid lower this week.  At 514¢, the WYCI is now below the EYCI for the first time in 18 months (Figure 2). Both the EYCI and WYCI have plenty of upside potential, with the 90CL remaining steady at close to 700¢.

Next week?:

Southern areas of WA, SA and Victoria are forecast to receive more showers next week and this should keep demand in those areas strong. The lack of rain in NSW and Queensland will keep a lid on any price rises. 

The Eastern Young Cattle Indicator (EYCI) managed to eke out a limited gain this week, lifting 4.45¢ to close at 520¢/kg cwt. Limited rainfall across much of the nation, except Victoria, acted as a headwind. Meanwhile, tightening supply across the east coast stopped the market from tanking too much.

National sale yard cattle indicators for the week were somewhat mixed, albeit within a narrow range with the opposing forces of limited rain and reduced supply keeping markets in a broad sideways pattern.

Yearling and Heavy Steers were marginally softer, coming in 1¢-5¢ lower across the nation. Vealer and Medium Steers, along with Medium Cow managed a little better with gains between 5¢-18¢ noted – Figure 1*. The National Vealer Steer indicator was given a significant boost this week by a large jump in WA Vealer Steer prices, up nearly 92¢ to close at 309.2¢/kg lwt.

It probably comes as no surprise given the rainfall pattern this week (Figure 2) but cattle prices in Victorian sale yards showed the most vigour across the states with gains between 8¢-23¢ noted for all reported categories, except Victorian Vealer Steers.

Looking at the east coast slaughter trend in recent week we have seen levels begin to trend lower since the start of July – Figure 3. A few weeks back we were processing around 160,000 head a week across the east coast, currently we are running at around 150,000 head and its likely in a few weeks’ time numbers will ease toward the 140,000 head region. That’s if the market follows along roughly with the average seasonal trend (black dotted line on Figure 3).

* All cattle prices in Figure 1 are expressed in ¢/kg lwt terms

Next week

The rainfall forecast for the coming week shows a repeat of this week, with falls limited to Victoria, coastal SA and the south west tip of WA. Limited rainfall on the horizon and the prospect of a dry finish to winter and a dry start to spring won’t do a lot to get cattle prices moving aggressively higher.

Seems like it’s a continuation of the sideways moves for the near term. If you are getting bored watching the sideways moves of the cattle market check out the 2004 comedy/drama Sideways over the weekend – its worth a laugh or two.