By Angus Brown | Source: NLRS, ACA
Recently we have been talking about how restockers and feeders are driving the young cattle market, on the back of cheap feed. Looking at our spread analysis, the discount for finished cattle, or premium for young cattle, becomes quite stark. How do we take advantage of this?
Our spread analysis chart gives a great snapshot of where the various state cattle indicators sit in relation to not only the Eastern Young Cattle Indicator, but also each other. While there is a detailed spreadsheet behind the chart, the calculations are relatively simple.
The spread for any particular indicator is simply the current prices minus the EYCI in carcase weight, and is shown by the red bar. The light green area is the historic range, calculated as one standard deviation from the mean. This basically means that in this week over the last 10 years the spread has spent 67% of it’s time within the green range, and 16.5% below, and 16.5% above. When the red bar is outside the green range it suggests something unusual is happening.
It’s no secret the cattle market is currently extraordinary, and figure 1 confirms it. Thirteen of the 20 east coast indicators we use are currently outside their normal range, and it would be more if there were quotes for SA Cows and Heavy Steers last week.
There are five indicators trading within their normal range, and unsurprisingly they are all young cattle, which have the option of being held or sold. That is, apart from SA Medium steers which bucked the trend to be at a smaller than normal discount to the EYCI.
Heavy steer and Cow supply is currently good, as we would expect in the spring and early summer. There are not a lot of options for growers holding heavy steers or cull cows, except to sell them, hence the very weak prices relative to the EYCI.
Given the abundance of cheap feed, growers holding young cattle need a lot more money to part with their stock, hence the more normal spreads for feeders and trade cattle, and the strong EYCI.
The last time heavy steers and cows were this discounted to the EYCI was in 2012, so we thought it prudent to have a look at what happened heading into the 2013 season. Figure 2 shows NSW Heavy Steers remained heavily discounted to the EYCI through to May, when figure 3 shows the spread closed due to the EYCI falling rather than Heavy Steer falling.
A similar situation in 2005 was corrected in January however, with the EYCI tanking in January, while Heavy Steers remained steady. History tells us that the spread between slaughter cattle and the EYCI is unlikely to correct through slaughter cattle rising in the New Year. As such it points towards potential downside in young cattle prices, while heavy slaughter cattle are likely to remain relatively steady.
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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