By Angus Brown | Source: MLA, ACA
Once again we are coming into the weaner season, and for the first time in four years, Cow and Calf producers in Victoria are going to be faced with prices lower than last year. As we have done for the past 5 years, we’re going to assess whether weaners are good, bad or fair buy based on a couple of different measures of value.
There is little doubt that Victorian weaners are going to be cheaper than last year. Recent store cattle sales, both physical and online, have seen 300kg lwt weaner steers making 320-350¢/kg lwt. If these prices were to continue into January the weaner sales will be around 60¢ cheaper than last year. This is a 15% discount, which is not something many growers would want to see.
Figure 1 shows that while weaner prices are likely to be much cheaper than last year, they will be similar to those seen 2 years ago in January 2016. Back in 2016, prices were hailed as being the best ever, and by some margin. It’s interesting how perspectives change after a sustained period of strong prices.
Our first measure of value is the spread of weaner prices over the Eastern Young Cattle Indicator (EYCI). When weaner sales are hot, and restockers are suffering from grass fever like they were last year, basis becomes very strong. See the 58¢ weaner premium last year.
When it is dry, and restockers are reluctant, basis is weak, and weaner prices are closer to the prevailing feeder and processor values, and hence the EYCI. In 2007 we saw the extreme example where weaner prices were the same as the EYCI, as dry weather and expensive grain saw them going for meat value.
The current premium for weaners sits at around 32¢, which, if it holds will be the second highest since 2001. In percentage terms the current premium is 11%, and the sixth largest since 2001, which makes it seem more reasonable.
The other measure of value is whether there is money in buying weaner to grow out. Figure 2 shows some ‘back of the envelope’ calculations on gross margins on buying weaners and selling as export feeders or heavy steers.
The ‘average’ prices, which would be consistent with normal seasonality, offer more than reasonable margins, while even the worst case margins are better than some of those made pre-2015.
Last year weaner cattle were too expensive. This year it’s safe to say they are fairly priced. Weaners are likely to sell for the second highest price on record, yet offer reasonable value to buyers who are looking at a sell/buy trade, or will see average seasonal price movement.
In a worst case scenario buying weaners is likely to be profitable, so the risk for buyers is low. There might, however, be better ways to use grass and money.
Sellers of weaner cattle should be looking for rain in Queensland to kick-start the market after Christmas, and move prices from fair to expensive.
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