There are a myriad of weather forecasts out there, and most farmers will know you can usually find one with some rain on it. At the moment, you can’t find a forecast for rain in the next fortnight for much of South Australia, Victoria, and Southern NSW. As such, producers are biting the bullet.
Winter is coming, and with it, slower growth rates. With no rain on the forecast for the rest of May, and prices at what could be described as reasonable, cattle are on the move in the south. The big yards are having big yardings, especially in the worst-affected areas like Wagga and Mortlake.
Last week we saw prices ease, but in reality, they are holding up quite well. Figure 1 shows that the lift in prices for all categories of cattle, thanks to floods in Queensland, has been reversed. The realisation that we are approaching winter with little to no pasture in key southern cattle zones has producers offloading cattle, with cow prices bearing the brunt.
While young cattle prices have dipped below 700¢/kg cwt, they are holding up remarkably well. Good rains in the north, and the fact cattle are light and cheaper to freight, at least means that southern producers who are offloading weaners are being reared as well have they have for the last two years.
Finished cattle prices are also holding well. The National Heavy Steer Indicator remains in the mid 600¢/kg cwt range, again level better than any time in the past two years, apart from the last month.
When things get dry, it is cow prices that tend to be most affected. Cows generally don’t get picked up by restockers, especially when they have to be freighted thousands of kilometres to find grass. Cow prices have fallen back to March levels but are 20% stronger than this time last year.
While weather models are aligned with no rain in May, for June, things are more positive. The consensus is that rainfall in June and July is more aligned with long-term averages.
We only have to look back to last year to find a similar season in the south. Figure 2 shows what happened to young cattle prices when it did rain, and it was in line with the ‘old’ seasonal pattern.
What does it mean?
There remains significant upside for cattle prices. The fact that values are holding at close to two-year highs, despite strong supply, tells us processors are happy to accumulate at these levels. When it does rain, and southern supply moves into winter mode, prices will respond accordingly.
Have any questions or comments?
Key Points
- Dry conditions and poor short-term rainfall forecasts drive cattle to markets.
- Cow prices have been most affected, with young and heavy cattle prices holding.
- When it does rain in the south, and supply tightens, there is strong price upside.
Click on figure to expand
Click on figure to expand
Data sources: MLA, ABS, Mecardo