While the downward price trend of young cattle this year has presented a challenge to producers of young cattle, for backgrounders or traders it opens up a potential opportunity to take advantage of near 10-year lows.
The Eastern Young Cattle Indicator (EYCI) has somewhat defied expectations and continued to fall during the spring. The combination of dry weather, a dry forecast and the increased supply thanks to the herd rebuild has seen the type of market you usually only get in a panic selling situation.
Figure 1 shows the EYCI is now back in the 300¢ range, a level not seen since 2014. In liveweight terms, at a 54% dressing rate, the EYCI is under 200¢/kg lwt. Even the most pessimistic of forecasters didn’t see this coming.
A quick look at Auctionsplus sales tells us that good lines of weaner steers will cost more than 200¢/kg lwt, more like 220-260¢, but heifers are cheaper, coming in at 180-200¢/kg. This is close to what could be considered a normal premium to the EYCI. The EYCI is usually cheaper as it includes many small pens of cattle, as opposed to large even lines of cattle backgrounders usually want to buy.
Finished and feeder cattle have moved back to a solid premium to the EYCI. During dry times this is a given, as it becomes harder and more expensive to put weight on cattle.
The outlook for prices is positive, if and when supply can match processing capacity a bit more closely. Australian cattle and beef are now cheap on global markets, and this should provide support or upside for finished and feeder cattle values.
Figure 2 shows some ‘back of the envelope’ calculations on buying weaner steers and growing out into heavy feeders or finished steers. The gross margin at the bottom shows there is little risk and possibly strong profits in buying light cattle in the current market.
Note that this trade calculation does not allow for any feed costs; these will vary between enterprises and should be calculated on a case-by-case basis when considering any trade.
What does it mean?
Cattle markets have turned in favour of buyers, and backgrounders are now in a good position if the season is okay. It is hard to see feeder or finished cattle getting much cheaper, given the strength in international markets. At some stage, there will be a jump in cattle prices, and that is when you want to have some on hand.
Key Points
- Young cattle markets are now close to a 10-year low.
- Feeder and finished cattle markets, have moved to a premium to light or weaner cattle.
- Market conditions have turned in favour of backgrounders or finishers, with strong profits and little risk.
Click on figure to expand
Click on figure to expand
Data sources: MLA, AuctionsPlus, Mecardo
