By Angus Brown | Source: MLA's NLRS
Cattle prices rose prior to Christmas. The question now is whether the rain has done enough to see strong northern demand for weaners, which has seen prices and basis reach record highs in the past. This article takes a look at where weaner prices could be over the coming weeks.
December rainfall has been described as ‘patchy’ over the east coast. While some areas had 200mm more than average, there are others that had well below average rainfall (figure 1). Importantly, key cattle areas in northern NSW and southern and central Queensland have had a very good start to the wet season. Meanwhile, the areas where the annual January weaner sales are held, in Victoria and SA, have had one of the driest springs on record.
Figure 2 shows how December rainfall impacted northern young cattle markets, causing them to rally over 60c, or 18%, since late November. This indicates that demand for young cattle in the north has improved. However, whether or not it will translate into demand at southern weaner sales remains unclear.
Store cattle sales in Victoria before Christmas saw light steers (200-250kg) make around 210-220c/kg lwt on average, with top sales at 260c. Last January, weaner steers made an average of 180-185c/kg lwt, so we can expect prices this year to be up 25-35c, or 17%.
However, if we see northern demand similar to what we saw in years like 2005 and 2011, the weaner premium to the Eastern Young Cattle Indicator (EYCI) in January could blow out to above 20c/kg lwt, from the closing 2014 level of 15c. Weaner prices generally follow the EYCI pretty closely from year to year (2015 is December values) (figure 1). So for prices to average better than 230c, we will need the EYCI to open higher, which is definitely not out of the question.
There have been four years in the last 10 where the EYCI has opened the year 20c higher than the close. Given the rain in the last week, this could well happen again with the EYCI at 390-400c/kg cwt in the first week of sales. This could push weaner average prices to 230-240c/kg lwt.
On the downside, weaner cattle prices could be similar to December values, but they are unlikely to be much lower.
Whether there is money in buying weaner steers at current prices remains to be seen. However, if finished cattle prices can rally in line with international market values to 380-430c/kg cwt, there will be reasonable money in buying weaners at what are likely to be historically expensive values.
The thing at the back of the mind of many buyers could well be that this might be the last opportunity to buy cattle at these levels for some time, especially if the monsoon arrives and delivers the drought-breaking rain which is hoped for.
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