By Angus Brown | Source: BOM, MLA's NLRS
There has been plenty of coverage of the Prime Minister’s drought tour, and the rain that it has brought. There appears to be more rain on the way. While maybe not ‘drought breaking’, it is the most significant fall in over 12 months for many areas, so we went looking for the last time this happened, and what it did to cattle prices.
The rain forecast for the coming week (figure 2), combined with the rain that has fallen in February to date, compared relatively favourably with the rainfall we saw in February 2003. The rainfall in the lead up to these events is similar, although the current drought seems to have lasted longer than in 2002, albeit a little less widespread and less severe.
Cattle prices from spring 2001 to autumn 2003 also followed a similar trend to what we have seen from 2012 to 2014 (shown by the EYCI in figure 1). The major difference is that over the last eight months the EYCI has maintained a higher level than in 2002, largely a result of very strong fundamental conditions in the cattle market, and good winter rainfall conditions in southern cattle areas.
Good rainfall in Queensland and northern NSW in February 2003 saw the EYCI rise from 238¢ to 329¢/kg cwt over the course of seven weeks as supply tightened and demand improved. The improvement in the EYCI equated to 38%, and brought the indicator back into line with where market fundamentals, such as export prices and grain prices, suggested it should be. After the initial price rise in February 2003, the EYCI maintained its level as a result of good follow up rainfall in the autumn and winter.
A 38% rise from current levels will put the EYCI at 386¢/kg cwt, which broadly is in line with current fundamentals. While this is no certainty, it is very possible, as we saw prices at the Roma store sale rise 16% last November and December on the back of weaker rain falls than those forecast.
The cause of the price rise will initially be from tighter supply as rain causes transport issues, and growers hold onto cattle in anticipation of an improved feed situation. Moreover, restocker demand will improve immediately as those with feed try and buy before the price rise, and over time more restockers join in. Store and female cattle prices are likely to rise more quickly than slaughter and heavier cattle, if market dynamics return to normal.
Obviously the forecast rain needs to fall, and some follow up will be required to maintain price rises.
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