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Still a margin in buying extreme priced weaners

The Eastern Young Cattle Indicator (EYCI) hit yet another record last week. The 930ȼ/kg cwt record converts to just over 500ȼ/kg lwt, yet another milestone for the young cattle indicator. Weaner cattle are still making a healthy premium over the EYCI, and here we look at whether there is any money in buying light cattle.

We thought young cattle started the year at extreme values, but the continued good season has seen prices continue to rally.  While the most recent lift in the EYCI is being attributed to feeder demand, weaner steers are still making over 600ȼ/kg lwt in many cases.

Figure 1 shows the EYCI is 23% higher than the same time last year, and a remarkable 90% over the same time two years ago.  All indications are that the EYCI is going to struggle to make further gains, and the slowing of the rally is a testament to this.  This sits pretty well with the normal seasonal pattern, with winter marking supply lows, although normal seasonal trends have gone out the window in recent years.

If we are somewhere near the top, the question is whether those looking for light steers to background should be paying extreme prices.

Obviously to assess the value in weaner steers we need to make some assumptions about future prices.  Current prices for export feeder steers and heavy steers can be considered close to the best-case scenario.  Light cattle bought now and put out on grass won’t be sold until early summer.  A 5% fall could be expected, with the worst-case scenario being a 15% decline.

A tight spring and higher grain prices could see feeder prices fall in the order of 15%, but it seems unlikely. 

Figure 2 shows there is some margin in buying weaners at 600ȼ/kg lwt.  If feeders or finished prices can remain within 5% of current prices weight gain will trump the fall in ȼ/kg value to offer a reasonable return.

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What does it mean?

Cattle traders are getting more comfortable with the extreme prices they have to pay, and it is largely because feeder and finished prices are also maintaining their highs.  Confidence in markets is holding store prices, and seeing them creep higher.

Given the reasonable margins shown in figure 2, don’t expect store prices to ease too much until either the feed supply wanes, or feeder and finished prices start to eat into margins.

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Key Points

  • Record young cattle prices are being driven by feeders and restockers
  • Feeder and finished cattle prices are likely to fall in late spring and early summer.
  • With a mild decline, there is still some margin in growing out weaner steers, and this is supporting store prices.

Click on figure to expand

Data sources:  MLA, Mecardo

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