The correlation between the Eastern Young Cattle Indicator (EYCI) and the 90CL US export beef price is primarily driven by our domestic supply and can give us some insight into the ebb and flow of Australian beef prices. While lower US production is also currently playing a role, few comparisons can better highlight the volatility of the Australian beef market in the past decade. But what does it mean for prices moving forward?
Historically, the first 10 years shown in
Figure 1 had the two prices trading within 20% of each other. The last 10 years
have seen a spread of up to 60% at times, and very few periods when the two
have aligned. We can see the last time the 90CL traded at a significant premium
to the EYCI was when the 2018-2020 drought created a flood of supply
domestically. The maturing of the herd rebuild here in Australia then caused
the EYCI to trade at a discount from the 90CL from the beginning of 2023, and
the price collapse that spring created another significant differential. In
just three years, the two prices experienced two of the largest spikes we’d
seen.
We can see from looking at Figure 3, that Australian
slaughter plays the biggest role in the spread of these two prices, with
significant upticks in each of the periods where the EYCI has operated at a
discount – being 2012-16, 2018-20, and now 2023-24. Despite the total weekly
reported East Coast slaughter being higher in both the previous periods, the
rise has been just as steep – if not more so – in the current Australian
slaughter trend, which is a factor in maintaining that discount. We can see
from the previous 10 years -2000 to 2010 – that slaughter was much more
consistent.
The 90CL price ended last week at 941¢/kg,
which was 13% stronger year-on-year. The EYCI closed at 628¢/kg, a massive 75%
above the same week in 2023. Despite this significant jump in the EYCI, it is
still sitting at a 44% discount to the 90CL price, compared to a 57% discount
12 months ago. We can see from our long-term chart, that it is not the norm for
this price difference to spend more than a very short period of time in the 40%
and more range, even during spikes and troughs. Looking at the shorter-term
Figure 2, we can see the 90CL price and the EYCI followed the same trend
through the winter but have once again started to diverge further. Despite
making up some of the ground lost last spring, the two prices have remained at
a 30-40% spread. So why haven’t the two converged, even though actual
Australian cattle slaughter is similar to where it was in say 2010, when the
two prices were similar?
The EYCI, despite being well above last
year and experiencing an early spring surge, is still well below the
five-year-average – 124¢/kg lower to be exact. Record high prices through much
of that period have skewed that average slightly. The current EYCI is also
below the 10-year average for the corresponding week, only by about 20¢/kg. So
while it is still at its fifth highest level for this time of year, globally
the beef trade hasn’t experienced the same price spike and then dive.
Obviously, US demand is the other side of
the equation, with the 90CL price being historically strong right throughout
this year so far. The only other time it has sat above the 900¢/kg mark was for
a couple of months in early 2022, while now it has only spent one week below
that mark since March. Low US herd numbers mean cow slaughter for the
year-to-date in America is down 14%, and their imports of Australian beef are
up 47% for the year-to-September compared to the five-year average. While
drought is now a concern for many beef-producing areas in the US, Steiner’s
latest report says it hasn’t increased cull cow or bull supply as of yet, and a
strengthening US dollar is making up for any slight dip in the export price
caused by plenty of supply.
What does it mean?
The forecasts are for Australian cattle slaughter to continue to increase in comparison to year-ago levels, hitting its peak in the current cycle next year and still being 14% stronger in 2026. This will mean the EYCI should continue trading at a discount to the 90CL, however, if US production and subsequent demand keep the 90CL price where it is, there is plenty of room for upward movement of our domestic price to bring the two indicators back closer together.
Key Points
- Despite recent improvement, the EYCI is still trading at a historically high discount compared to the 90CL.
- Volatility of the past decade is exemplified in the EYCI-90CL price spread, as domestic cattle prices reverted to a longer-term average.
- Australian cattle supply will ensure continued price differential, however, there is still room for an EYCI increase.
Click on figure to expand
Click on figure to expand
Click on figure to expand
Data sources: MLA, Steiner Consulting, Mecardo
