By Angus Brown | Source: MLA's NLRS
After two years of volatility, the Eastern Young Cattle Indicator has had a remarkably steady month, trading in a 15¢ range and closing last week at 479¢/kg cwt (although up again this week). Meanwhile the last month has largely seen cows, which were already cheap, get cheaper. And southern heavy steers that were expensive, got more expensive. Almost all cattle prices in Queensland remain at the heavily underpriced end of the scale.
Table 1 leaves little doubt as to which cattle categories are driving the market, with heavy and medium steer prices in Victoria, NSW and SA trading at very large premiums to the EYCI. The strong prices for heavy grassfed cattle is also being reflected in the heavy grainfed sector. This is flowing through to feeder prices, seeing them at historically strong premiums to the EYCI for this time of year as well.
Trade steers are also relatively expensive in NSW and Victoria, while being at a heavy discount in Queensland. Feeder and trade cattle generally make up around 60% of EYCI cattle, so it makes sense that the EYCI is being depressed by low restocker prices, along with cheaper values in Queensland.
Cow prices remain in the doldrums (in a relative sense) in all states, with only SA cows managing to stay within the historical range. The continued strong supply of cows is obviously depressing values, while cattle that are finished are in tight supply, at least in southern states.
Winter generally marks the low point for Queensland cattle spreads to the EYCI, with spreads moving higher over the second half of the year as supply tightens (figure 1). There is potential for Queensland cow prices to gain 80¢ to 440¢/kg cwt without the EYCI moving, but this would obviously take a good early start to the wet season.
Additionally the EYCI itself seems underpriced relative to finished and feeder cattle prices. If we use the NSW Feeder price as a benchmark (figure 2), the EYCI needs to gain (or the NSW feeder needs to lose) 12¢ to move back into line.
From a price risk point of view, all cattle prices in Queensland, and cows in general, have a lot to gain and little to lose. Conversely, heavy steers have a lot to lose in southern states when supply improves. However, the current dynamics of the market suggest that tightening supply, if it ever happens, will push all prices up towards the southern heavy steer price rather than heavy steers falling to meet the rest of the market.
The rain falling as I write this should have a positive impact on young cattle and cow prices if it encourages growers to hold through to spring on the prospect of better grass supplies.
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