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Wednesday, October 28, 2015

Live export cattle prices leading the way

By Angus Brown  |  Source: MLA

Key points

  • Live Export prices have rallied in spite of east coast feeder prices falling heavily.
  • WA Feeder prices have also remained strong, suggesting that east coast falls have been supply driven.
  • Young cattle price upside potential remains strong once the current supply glut is cleared.

2015-10-27 Live Ex FIG 1

2015-10-27 Live Ex FIG 2

2015-10-27 Live Ex FIG 3

In contrast to the solid correction in east coast cattle prices over the past month, the more isolated Darwin Live Export and Western Australia markets have been moving higher and steady respectively. This is another indication than the current price downturn may be short lived.

As figure 1 shows, and we often comment on, all cattle prices move together. This is especially the case when the moves are large like we have seen over the last two years.  It is also no surprise that the more geographically isolated destinations are the most volatile. The WA feeder and the Darwin Live Export steer prices have diverged from the Queensland and Victorian Feeder indicators more often, and by further.

The most recent anomaly in the usually similar price trend has been a rapidly rising Live Export price, while the Queensland and Victorian Feeder were falling.  Since mid-September, the Live Export price has rallied 55¢ to a record 325¢/kg lwt. It is now at a strong premium to Victoria and Queensland Feeder steers, which have fallen 51 and 31¢ to 282 and 289¢/kg lwt, respectively (figure 2).

It is strange to think that Brahman steers sold out of Darwin could be at a 12% premium to British Bred steers in Victoria. However, that has been the case for 64% of the weeks over the last three years, when Live Export prices have been quoted.

The rise in the Live Export price has been driven by the increased quota for cattle to Indonesia. This has coincided with weaker supply, possibly due to more cattle having been sent south in the previous three months.

Feeder steer prices in WA have resisted the spring price decline we usually see and have remained largely steady, around the 300¢/kg lwt level since June.  Before August, the WA Feeder price was at a premium to Victorian and Queensland feeder prices for much of the preceding 2½ years, constantly giving a target for east coast prices.

What does this mean?

Live Export prices are not at a record premium to Queensland Feeder prices. The current 10% premium is a long way below the 45% seen in summer 2014-15.  This means that we could see Live Export prices continue to rise, or Queensland Feeders continue to fall. That said, Live Export premiums above 10% are usually short lived.

The main point to take out of the strong Live Export and WA Feeder price relative to Queensland and Victorian indicators is that the recent price falls are due to a supply glut. This could dissipate with the rain that is forecast over the coming week.  The price support we saw last week should continue, and values could possibly push higher.

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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