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Thursday, January 05, 2017

We have a weaner – it’s not the buyers

By Angus Brown  |  Source: Auctionsplus, NLRS

Key points

  • Weaner cattle prices are going to set new records for absolute prices and premium to the EYCI.
  • Our expected margins looks ok, but working off current feeder or heavy steer prices gives a better result.
  • The market has become comfortable with higher cattle prices, but there is significant pressure building on finished prices.

2017-01-05 Weaner

2017-01-05 Weaner 3

The weaner sales are on again. The hyperbole is out of control this year with weaner cattle likely to not just break all records in January, but absolutely smash the all-time highs seen in 2016. The question this year will not be whether weaner steers are too cheap, more whether any money can be made by those purchasing them.

Regular readers will know we generally have two measures of value in livestock markets for store cattle.  The first is the price relative to major indicators, and the second is whether there is money in the trade under some likely scenarios.

In terms of weaner prices relative to the Eastern Young Cattle Indicator (EYCI), or the spread, weaners have never been more expensive.  Figure 1 shows the price of the EYCI each January, along with the average price of Victorian Weaner steers and the spread in ¢/kg live weight.

In the last two years in this very article we called weaner prices cheap, as the spread was at or below the long term average of 15¢/kg cwt.  Current weaner steer prices of 400¢/kg lwt are at an extraordinary 58¢ premium to the EYCI.  On this measure, weaners are expensive, very expensive.

Looking at the possible margins on buying weaner steers and growing out into either feeder or heavy steers, weaners currently don’t look as expensive as one might expect.  Our worst case scenario for feeders has the trade making a small loss after $150 of expenses are included.  Under average or best case scenarios there is some money in growing out feeders.

For those looking to take weaners out to heavy steers, again there is some margin in growing out cattle, not as good as recent times, but there will be some return on the feed that currently stands in the paddock.

Cattle buyers are likely basing their purchase prices on the information currently on hand, which are current feeder and heavy steer prices.  If we look back at the dollar per head margin between weaners and feeders or heavy steers, we can see that the difference is currently very strong. 

In the past buyers have purchased weaners at prices on average just $175/head lower than feeders and $250/head lower than heavy steer sale prices after $150-170 costs are taken into account.  The current difference of $305 and $404 per head, after costs are included, looks like good buying.

What does this mean?

When we did this analysis last year the conclusion was that weaner steers were cheap, despite the record highs.  In 2016 it hadn’t yet rained in Queensland, and growers were not convinced that high finished cattle prices were here to stay.  In the current market there is a dearth of cattle available, high prices have been around for 18 months, and grower confidence has never been higher.

On a sell/buy trading strategy weaners are currently good value, that is relative to current finished cattle on a $/hd basis.  However, those jumping into cattle now expecting to make more than $250/head after costs are likely to be disappointed.  There is a real risk trades could come out near the worst case level outlined in table two, and our general outlook is for weaker prices in 2017 and a return to historically more normal margins.

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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