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Thursday, October 06, 2016

North-South divide in EYCI lot feeder and restocker spreads

By Matt Dalgleish  |  Source: MLA, NLRS, ACA

Key points

  • The northern restocker EYCI percentage spread is currently at a 5.4% premium and the southern restocker EYCI spread is sitting at a 5.2% premium, which are both above average for this time of year, suggesting that restockers across the country are still prepared to pay above the EYCI to secure young cattle.
  • The northern lot feeder EYCI spread is at a discount of 1.7%, which is below average for this time of year, while the southern lot feeder spread is sitting right on the average at a 1% discount.

2016-10-06 Cattle Fig 1

2016-10-06 Cattle Fig 2

2016-10-06 Cattle Fig 3

2016-10-06 Cattle Fig 4

The underlying data that makes up the Eastern Young Cattle Indicator (EYCI) has shown that price movements at the saleyard this season have been dominated more by restocker and lot feeding interests than processors, when compared to previous seasons. Analysis using this underlying EYCI data published in May 2016 suggested optimism among restockers and lot feeders was likely to result in a robust season for young cattle. This article delves a little deeper into the underlying data to examine the different EYCI price spread behaviours of these two buyer groups between the north and south during the current season.

Read the original underlying EYCI analysis from May 2016 here.

Figures 1 through to 4 show the percentage spread pattern that four different buyer groups; northern restockers, northern lot feeders, southern restocker and southern lot feeders, are prepared to pay above (premium spread) or below (discount spread) when compared to the EYCI. Each graph illustrates the spread pattern for the current season, the 2015 season, the ten-year average spread pattern and the normal range in spread (green shaded area) that represents where the spread has trended for 70% of the time over the last decade.

Figure 1 highlights the spread pattern for northern restockers which is characterised by a peak in the spread ranging between 3-8% from late Spring/Summer and a trough ranging between 0-4% during Winter each season. The current percentage spread for northern restockers sits at a premium of 5.4% and has been trending above the long term average pattern since August.

The northern lot feeder spread pattern shows a similar cyclical movement when compared to northern restockers in that the peak, averaging around a 2% premium, is usually present during late Spring/early Summer followed by a Winter trough, averaging a discount of about 3% - figure 2. Currently the northern lot feeder spread is at the lower end of the 70% range for this time of year at a discount of 1.7% and, as shown by the seasonal movement, tends to spend more time during the year at a discount. The widening of the 70% range during Spring indicates that there is more volatility in spread movements for northern lot feeders during this time when compared to the rest of the season.

Moving to the southern buyer groups we can see that the seasonal pattern of peaks and troughs in the spread is reversed, reflective of the different weather patterns between the north and south of the country at these times - figures 3 and 4. The spread pattern for southern restockers exhibits the most volatility of all four buyer groups and usually starts/ends the year at a slight discount spread. The peak in the spread for southern restockers tends to occur late Winter/early Spring at around a 5% premium and is currently sitting at the top of the 70% range for this time of the year at a 5.2% premium.

The seasonal spread pattern for southern lot feeders is fairly evenly dispersed over the year between a premium spread during Autumn/Winter and a discount spread during Spring/Summer. The southern lot feeder spread tends to reach a peak late Autumn averaging around a 4% premium and reaches a trough during Summer averaging about a 4% discount – figure 4. Currently the southern lot feeder spread is in line with the long term average pattern at a discount of 1%.

What does this mean?

Given the recent BOM rainfall forecast points to a wet October, particularly in the south, it is likely the southern restocker spread may continue to buck the average seasonal trend and remain at a reasonable premium for longer. The northern restocker premium spread is anticipated to remain above average and continue to widen towards 8%.

The northern lot feeder discount spread should begin to narrow from the current level and is likely move from a discount to a premium toward the end of the year, while the southern lot feeder spread is likely to remain at a slight discount for the remainder of the season.

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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