Brought to you by AG Concepts

Tuesday, January 13, 2015

Weaners close to records; does it add up for buyers?

By Angus Brown  |  Source: MLA's NLRS

Key points

  • Victorian weaner sales much stronger than last year, but relative to the EYCI and finished cattle prices, they were cheap.
  • Margins on growing out weaners this year look like they will be good to very good.
  • Given the state of cattle supply and finished cattle prices, Victorian weaners look cheap this year.


2015-01-12 Close To Record But Weaner Look Cheap FIG 1

2015-01-12 Close To Record But Weaner Look Cheap FIG 2

Widespread rain across eastern Australia came at just the right time for those selling weaners at the annual ‘festival of the weaner’ in Victoria and south-east SA. With buyers paying close to record prices, the question remains whether weaners are expensive, cheap, or just well-priced.

Demand for young cattle has strengthened significantly since the start of December, with this year’s weaner sale prices ranging from 220 to 250¢/kg lwt. A majority of the steers sold around the 230¢/lwt level regardless of weight or breed, with heifers 15-30¢ behind that.

Simply looking at this year’s weaner sale prices compared to previous years tells us that, historically, cattle were expensive (figure 1). However, there are a couple of other key measures of value when looking at livestock trades.  Firstly, we look at prices relative to the Eastern Young Cattle Indicator (EYCI) and other cattle types at the time. Secondly, we look at the price outlook and how much money there is in buying these cattle to sell down the track.

In terms of the weaner price relative to the EYCI, the opening sales look cheap.  Historically, Victorian weaners have averaged 15¢/kg lwt over the opening EYCI of the year (figure 2).  This year, the premium of 6¢ is the lowest since 2007, and well below the average.

Also, if we look at the other years when weaners have been around 230¢/kg lwt, in 2005, 2011 and 2012, the NSW Heavy Steer price (as a good indicator of east coast prices) was between 337 and 355¢/kg cwt. Last week, it was 412¢/kg.  So compared to other cattle categories, Victorian weaners are currently cheap.

When projecting returns, we look at a worse case, expected case and a best case scenario. Figure 3 shows the margin on taking weaners to feeders and heavy steers, with an estimate for freight, management and selling costs accounted for, but no costs included for feed as these are obviously too variable to estimate here.  

The projected prices in table 2 are historically high. However, given current finished cattle prices, international beef markets and the state of the herd, they are realistic. Moreover, they show that margins on weaners bought last week are probably around break-even at worst, very good at best, and better than usual if we get the expected result.

What does this mean?

For the second year in a row, and under very different prices and circumstances, we’ve come to the conclusion that weaner cattle at Victoria’s January weaner sales are relatively cheap.  Obviously, there could be left field issues which throw these projections out. However, under current and forecast world beef prices and Australian cattle supply, it’s hard to see too much weakness in the cattle market from here.

Even if the rain stops and it dries out again, the worst case scenario projection here should be pretty close to the mark.  We may look back and see January as being the best buying opportunity of 2015, as there still seems to be some concern surrounding the season that is depressing the market in the face of record finished cattle prices.

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. 

x

Sign up for a FREE BASIC SUBSCRIPTION now to read this article.

Mecardo will send you its latest market analysis outlook delivered to your Inbox as it's published.  You will also receive one month Premium access for free.

You tell us what information you want to hear about, so you'll only be alerted to information that is relevant to you.

Learn more about Mecardo Sign Up Now!