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Thursday, October 26, 2017

Restockers digging deep again

By Matt Dalgleish  |  Source: MLA, ACA

Key points

  • Restocker percentage premium spreads to the ESTLI received a significant boost over the October period moving to levels reflective of herd rebuild phases in the recent past.
  • Southern restocker spreads are indicative of fairly normal seasonal movements, currently sitting at a 1.4% premium and in line with average seasonal movements.
  • Northern restocker spreads have widened significantly during September/October to levels one and a half times higher than normal for this time of the year at a premium spread of 8.6%.

2017-10-26 Cattle Fig 1

2017-10-26 Cattle Fig 21

2017-10-26 Cattle Fig 3

Analysis of the underlying saleyard data that is used to create the Eastern Young Cattle Indicator (EYCI) shows that optimism of restockers has been increasing during October as they appear more prepared to pay a premium to secure young cattle. This piece delves a bit deeper into the figures to see if the renewed restocker interest is part of the normal seasonal cycle or if there is something more behind it.

Figure 1 shows the historic movement in the restocker spread to the EYCI, with a lift in the premium percentage spread over October clearly evident. This effectively means that restocker buyers at the saleyard have been prepared to pay more to secure young cattle as the month progressed, indicative of increased buying confidence.

Indeed, the restocker spread has now broken above the 70% range banding for the first time since 2016 and currently sits at levels that have been characteristic of herd rebuild phases in the recent past, such as during 2011 and the 2005 seasons – as identified by the blue circles.

A further breakdown of the restocker figures into the southern and northern regions, with Dubbo as the halfway point, shows a distinct difference in the buying behaviour of northern and southern restockers, even after accounting for the normal seasonal differences in restocker spread activity.

Figure 2 outlines the restocker spread to the EYCI, filtered for southern buyers. Although there has been an increase in the spread from a discount to a premium over October it is still moving broadly in line with the normal seasonal pattern, as identified by the long-term average trend line and currently sits at a 1.4% premium to the EYCI.

In contrast, a look at the northern restocker spread activity over the season shows a significant improvement in the restocker spread during the September/October period. While it is not uncommon to see the northern restocker premium spread to the EYCI widen in the second half of the season the magnitude of the widening, particularly during October has been impressive when compared to the 2016 and longer term average seasonal pattern – figure 3.

Indeed, at a current premium spread of 8.6% the northern restocker spread is one and a half times the seasonal average and has broken above the usual range that is common for this time in the year, as identified by the 70% banding.

Related articles – July Restocker analysis & September Restocker analysis

What does this mean?

The July restocker analysis (see link above) suggested, the dry spell in Winter would see the restocker premium spread to the EYCI fall back to zero, in both the north and south – which occurred during September.

An updated forecast from the Bureau of Meteorology (BOM) pointing to the chance of a La Nina developing into late 2017/early 2018 has prompted the activation of a La Nina watch on the BOM website. The last La Nina event was recorded during the 2010/11 season which coincided with a herd rebuild phase that saw herd numbers rise 6.6% in 2011.

Clearly, the recent northern rains (with areas around Bundaberg reportedly getting up to seven times their monthly average rainfall during October) and the increased chance of a La Nina event on the cards have given northern restockers the confidence boost needed to get them back into the young cattle market in a big way. Let’s see how long it can last.

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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