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Tuesday, January 16, 2018

Cattle market won’t find support in the US.

By Angus Brown  |  Source: CME, MLA, ACA

Key points

  • US Cattle Futures fell in November and December, but remain stronger than this time last year.
  • Equivalent Australian cattle prices are at discounts to US values, but not enough to see significant upside.
  • Strong rainfall is required to see real upside in cattle markets, with current values reasonable under fundamental conditions.

2018-01-11 Cattlep Fig 1

2018-01-11 Cattlep Fig 2

United States cattle markets have been showing plenty of volatility. For Australian cattle growers, there has been good news and bad news in this, and we’ll have a look at both, and what it might mean for cattle price trends for the coming year.

After a rally in October, which added 25% to Live Cattle Futures and 13% to Feeder Cattle Futures, US cattle prices fell into the end of the year. Concerns surrounding large numbers of cattle on feed, and the seasonal slowing of demand due to the winter cold has seen both cattle futures contracts open the year a little weaker.

Figure 1 shows Feeder Cattle Futures spent 2017 yo-yoing between 700¢ and 850¢/kg cwt in our terms. The good news is that US Feeder Cattle are 6% stronger than this time last year, and US prices seem to have found a bottom.

Live Cattle Futures have shown more volatility on a percentage scale. Changes in demand tend to have strong impact on US finished cattle prices, and it has seen values fall during November and December.  Lower prices have reportedly led to lotfeeders holding on to cattle and swelling inventories, which might depress prices for a little while this year.

Again, Live Cattle prices are 8.5% stronger than the same week last year, and are currently well above the lows set in 2016 and again in 2017, so there are some positives to come out of the US market.

In comparison, the EYCI is at a 146¢ discount to US Feeder Cattle Futures which is as large as it has been since early 2016. 

The main relationship with the US market is in finished cattle, as our beef competes with US beef in Japan and Korea, and the US is a big market for manufacturing beef. Figure 2 shows that while the QLD 100 day grainfed cattle indicator has moved back to a discount to the US price, it is only 20¢ and not likely to inspire increased demand for Australian grainfed beef.

What does this mean?

This analysis fits pretty well with recent articles on processor and lotfeeder margins. Cattle are priced about as well as can be expected given market fundamentals, with no one except calf producers making any real money in December.

As we move into 2018, it is increasingly looking like further upside is going to need some wet season rain soon in order to tighten supply. If this occurs it would likely push processor margins in the red, unless we see some relief from the AUD or rising beef export prices.

Mecardo information is provided to assist in your marketing decisions. It contains a range of data and views on the current market. It is not intended to constitute advice for a specific purpose. Before taking any action in relation to information contained within this report, you should seek advice from a qualified professional. The information is obtained from a variety of sources and neither Mecardo nor Ag Concepts Advisory will be held liable for any loss or damage whatsoever that may arise from the use of information or for any error or mis-statement contained in this report. 


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