As we discussed last week, the US is experiencing extreme highs in its domestic cattle market due to herd numbers being at their lowest point since World War II. The impact on Australia’s market comes primarily through the 90CL imported lean beef trade, for which domestic supply in the US is currently lacking. While imported lean product is still trading at a significant discount to the domestic product, the 90CL price has been generally trending higher for the past 12 months and currently sits in record territory.
The 90CL export beef price’s latest weekend-available figure was a record US338c/lb, which converted to AU1092c/kg. Due to the conversion rate, the AU price record was eclipsed a few weeks ago, when the 90CL indicator was within a whisker of AU1180c/kg. We’ve regularly covered how much lower US domestic cow slaughter is boosting this trade due to their herd rebuild from low numbers, and now their subsequent strong feeder cattle market is pushing even more demand onto lean beef.
Domestically, the Eastern Young Cattle Indicator closed last week at 894c/kg, having climbed about 150c/kg in just two months. The EYCI hasn’t trended at current levels or higher since 2022 and has now surpassed the five-year average for the past two months as well, currently sitting 13% above it. The EYCI is driven largely by restockers, and improved seasonal conditions in the south have meant both less supply and more demand. While it is cows rather than young cattle that flow through to the 90CL, solid prices in that category also tend to flow through to the EYCI.
Looking at the recent correlation between the 90CL and EYCI, we can see that since the Australian industry entered a destocking phase and the market started to react accordingly in 2023, the EYCI has operated at a 25–40% discount to the 90CL. It currently sits at a 19% discount, the closest it has been to the 90CL price since March 2023—with the exception of one public holiday–impacted week in January 2024. While we experienced a surge in the EYCI to a premium over the 90CL in 2020, this was primarily driven by domestic impacts, as was the decline back to a discount.
But if we go back to the 2015 rise, we can see many more similarities to the current period, with US herd numbers low and beef demand at historical highs. It was the last time Australia sent record levels of beef to the US, and it was also a period of improved seasonal conditions in much of the country after two years of drought, meaning reduced domestic supply after record-high turnoff.
What does it mean?
If we follow the patterns of 2015–16, the EYCI still has plenty of upside available to get back to parity. If it does, like 2015–16 it is likely to operate at less of a premium, and for a much shorter period of time, than it did in the 2020–22 period. The 90CL will be the likely determinant of whether the EYCI can return to a premium, as it was dropping in late 2015 and early 2016, which isn’t on the cards as of yet. Let’s say the 90CL holds firm: the EYCI will need to gain another 200c/kg to reach parity, which, while unlikely, gives plenty of positivity to the market moving forward.
Key Points
- The 90CL has continued to climb, the latest week-end figure hitting a record high US338c/lb.
- Despite this, the 90CL premium over the EYCI is now at its smallest since early 2023 – the last time the EYCI was at its current level.
- Scope for further upside to EYCI, as 90CL also at historical highs, the last time EYCI peaked.
Click on figure to expand
Click on figure to expand
Data sources: MLA, Steiner Consulting, Mecardo
