The female and young cattle selloff continues as meaningful rainfall eluded much of New South Wales. Slaughter rates have continued to climb, and prices have fallen abruptly but are finding some support.
Over the last six months we have mentioned a number of times about the large herd bringing with it large price risk. We thought the supply pressure would come out of Queensland with failed summer rain, however it has been a smaller, but equally influential, area which has emerged to drive cattle supply higher and prices lower.
Figure 1 shows east coast cattle slaughter reaching a new six year high in late April. The Public holiday will throw numbers out over subsequent weeks, but slaughter tipping over 160,000 head in the week ending April 17 is significant. We’ve only had three weeks of cattle slaughter over 160,000 head since 2015, and they were all at the height of the 2019 drought.
Perhaps the concerning thing is that the herd was pegged at 29 million head in 2019. The herd estimate for this year is close to 31 million head, which means cattle slaughter will have to remain elevated for some time to churn through the cows being culled.
The influx of cows to processors and young cattle to store sales has impacted prices, but in generally values are holding reasonably well. Figure 2 shows the Eastern Young Cattle Indicator (EYCI) has eased close to 15% since the March peak, but remains above last year, and way above 2019.
Helping keep young cattle prices at relatively strong levels is the positive outlook for cattle trading. Figure 3 shows that those that have grass can wear some downside in feeder or finished cattle markets and still turn a profit.
Freight costs are a talking point, so we have included $120 in freight to the calculation, which will move cattle over 1000km. It should be noted that the National Feeder Steer Indicator currently sits at 445¢/kg lwt, wearing a 10-12% price decline over the last month.
Note that this trade calculation does not allow for any feed or administrative costs and uses an estimated freight cost; these will vary between enterprises and should be calculated on a case-by-case basis when considering any trade.
What does it mean?
Rainfall in key dry areas would put a stop to, and turn prices around quickly, but it doesn’t look like it’s on the cards in the short term. Where the floor comes in depends on feed prices, which are also on the rise. The 2023 price trend (figure 3) is the template for the worst case but let’s hope it doesn’t come to that.
Key Points
- Cattle slaughter has hit six year high with a strong herd and dry weather driving supply.
- Prices have fallen but remain stronger than last year.
- Worst case scenarios are similar to 2023 to be driven by a dreadful season.
Click on figure to expand
Click on figure to expand
Click on figure to expand
Data sources: MLA, Mecardo
