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Thursday, September 17, 2015

Competitive tension in young cattle markets likely to intensify

By Augusto Semmelroth  |  Source: MLA's NLRS

Key points

  • Young cattle saleyard throughput has tracked well above historic levels this year.
  • Lotfeeders have been the undisputed largest buyers of EYCI-type cattle this year amid feeble restocker demand and processors’ ability to secure sufficient supply via direct purchases.
  • Competitive tension for young cattle at the yards is only expected to intensify, particularly once northern markets get a wet season break.
  • The combination of looming tight young cattle supplies, robust processor and lotfeeder demand and an expected revival in restocker confidence bodes well for prices later this year.

2015-09-17 EYCI Yardings Article FIG 1

2015-09-17 EYCI Yardings Article FIG 2

2015-09-17 EYCI Yardings Article FIG 3

Eastern states young cattle supplies have skyrocketed over the last two years on the back of drought induced turnoff and, more recently, favourable sale prices. As store lines became readily available and restocking activity remained subpar, feedlots stepped in to absorb record numbers of young cattle this year. Processors, on the other hand, stepped out of the yards and became more reliant on direct purchases.

Figure 1 shows the weekly Eastern Young Cattle Indicator (EYCI) yardings for the last two years alongside the average levels for the 2009-2013 period. Based on those historic average values, turnoff of EYCI-type cattle generally tracks around 15,000 head per week between January and May before easing to 12,000-14,000 head in winter and spring. By November, numbers start to lift again towards 15,000 head.

Despite the challenging seasonal conditions seen in 2013, young cattle supply only finally started to disconnect from its average levels during 2014. Further, this trend only became really evident in the second half of 2014 on the back of deteriorating rainfall conditions in NSW and Victoria in spring and solid prices at the time, both inducing turn off.

This year, the combination of another failed wet season in the north and skyrocketing cattle prices across the east coast saw the turnoff gather greater momentum. For most of the year, EYCI yardings have tracked above 15,000 head. This includes several weeks above 20,000 head and some nearing 25,000 head. As a result, the total number of young cattle yarded this year so far has been 33% greater than the 2009-2013 average.

Looking beyond the rise in absolute young stock numbers, two other key trends have emerged this year. The first one is the robust lotfeeder demand, which saw remarkable numbers of young cattle heading to feedlots. To put things into better perspective, figure two shows the percentage of EYCI-type cattle purchased by lotfeeders this year compared to historic levels.

Since the start of the year, lotfeeders have absorbed 40-55% of the weekly EYCI-cattle yarded on the east coast. This is in stark contrast to the average of 30-45% seen over the last 10 years. On the flipside, processors have only bought 20-25% of the EYCI supply when they usually take 30-35% in the first half of the year. However, processors have finally started to head to the yards in order to secure sufficient numbers since August, as a result dwindling availability of direct sales.     

What does this mean?

The EYCI yarding are quite effective in showing the intensity and destination of young cattle going through the yards this year. Based on the numbers seen above, two trends stand out. Firstly, young cattle supply has been particularly plentiful. Secondly, feedlots have clearly been the ones absorbing most of the excess numbers coming to the market.

Going forward, we expect the competition for young and store lines to intensify further. On the one hand, lotfeeders are unlikely to step back in order to maintain full capacity, particularly as grain prices ease and grainfed prices continue to rise. On the other, the projected revival in restocker confidence once the northern wet season breaks will give producers the green light to stock up.     

However, by the time this scenario unfolds, the pool of young cattle available for sale will have contracted substantially. This will not only push the competitive tension to a whole new level but will inevitably see buyers moving deeper into a “discomfort zone” to make sure sufficient numbers are secured.   

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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