Supply pullback lends support- but will it last?

Nutrien Ag Solutions cattle saleyard.

A further retraction of supply in the key states of QLD and NSW lent support to the market this week, with both the EYCI and restocker steer indicators rising in response to the tighter market. However, there is little sign that demand has improved, with buyers seemingly content to wait it out to see how the market evolves next year.

East Coast slaughter for the week ending 09th December, 2022 lifted 1% week on week to 104,001 head. The lift moves in unison with the typical late year lift towards Christmas we usually see, and, pleasingly, it’s up 16% on what we saw at the same time in 2021; indicating that the relaxed prices in recent weeks, combined with labour issues being sorted out may just have encouraged some processor demand out of the woods- hopefully this will continue into 2023; though slack US demand for grinding beef and high inventories may continue to put a dampener on things for a while to come till their pastoral conditions turn, and they enter a rebuild cycle. Relaxation of Chinese COVID restrictions is also a bright spot, both for Chinese export demand, and global economic growth, which will support beef demand in multiple markets.

The Eastern states Young Cattle Indicator (EYCI) clawed back a good chunk of ground this week; advancing a pleasing  32¢(<4%) week on week, to close at 901¢/kg cwt. Similar to last week, the extra pep we can see in prices can be put down to a another sizable week on week drop in supply of 16% across the markets. On the EYCI, the number of head contributing to the index plummeted 27% week on week by 3,000 head to 8,044 head. This is 43% below the volume we started seeing back in the start of November, when the price collapse to below the 1,000¢/kg cwt started. Again, I can reiterate that the stability in pricing at the moment really seems to be driven by producers pulling back supply in response to the low prices, and this kind of withdrawal is not a typical behaviour for this time of year- If we examine figure 2, we can see that on both a five year average basis, and last year in 2021, total east coast yardings trended much higher.

Roma Store, Wagga, Dalby and Dubbo were the key contributors to the EYCI index, at a comibined 60% between them. Roma steers traded at 1,004¢/kg cwt, while Wagga trailed tat 909¢,dalby at 918¢/kg cwt and Dubbo steers moved at 847¢/kg  Roma’s performance was solid, representing an 84¢(9%) week on week uptick.

NLRS Roma Store market reporter, Sam Hart commented that it was restocker buyers driving the market higher there on the last sale for the year. Examining the sale report closely reveals that the high average steer prices were mainly driven by sub-330kg restocker purchases, some of which traded in the 1,100-1200¢/kg cwt region, with the steer average dragged down by 400kg+ feeders which only averaged 830¢/kg.(432¢/kg lwt), with the price backtracking on the prior week, reflecting the current weakness in feeder demand, as buyers wait on the sidelines.

In Dubbo, the average steer price was dragged down by a large line of 300-400kg steers, which sold to a feeder buyer at 833¢/kg, in an environment of lower competition due to a major feedlot buyer not being in attendance. 

The Western Young Cattle Indicator (WYCI) plummeted 95¢(11%) this week to close at 798¢/kg cwt; The fall was all related to a drop in vealer prices, and a reduction in the vealer percentage of 9% to 86%. Yearling steer prices recovered 10¢(1%) to reach 682¢/kg cwt. NLRS Mount Barker reporter Tracey Kilner comments that feeder buyers in the west showed increased demand for heavier weights. Meanwhile in Muchea, Terry Birkin reported that some new restocker faces were seen at the saleyard, indicating that recent price falls may have attracted some additional interest from buyers.

Note that our week in cattle table now shows the preliminary yardings figures for the current week- bear in mind that the numbers are not perfect, and likely to see some additions as data from later sales are added, but it’s still more relevant and less confusing than effectively reading last weeks news! (Slaughter and 90CL prices still remain one week behind though)

Preliminary east coast yardings for the week ending 16th December, 2022 were down 4,923(16%) from the week prior. To highlight the huge swing in supply volumes recently, this represents a 38% drop compared to a month ago, with QLD volumes leading the charge at 60% down from month ago levels. NSW yardings are also down 24% from month ago levels though you do need to consider the impact of floods and the on again, off again supply volatility that has driven in recent times. This week, the slip in supply was mainly driven by QLD, which saw a 27% fall in offerings,  followed by NSW, which slumped 29%. This was offset by some increased selling interest in VIC, where numbers jumped 33%.

The national indicators were a mixed bag this week, with restocker prices lifting 7¢(1%) to close the week at 569¢/kg lwt, and heavy steer prices leaped a huge 43¢(12%) to 409¢/kg though this was only off 37 head of cattle, mostly out of Shepparton, Wodonga and Wagga which has to be taken into consideration. Similarly, medium steer prices tanked 46¢(11%) to close at 358¢/kg, represented by just 120 head, with the index slammed by 79% of the contributing volume coming out of the west at Mount Barker, where prices averaged 352¢/kg. The feeder steer index had decent representation of 3,094 head this week, down 29% on the week prior. Despite the price support coming from lower supply, demand showed continued weakness, as prices slipped 5¢(1%) to settle at 437¢/kg lwt.

The 90CL price sailed on at an even keel in US dollar terms last week, remaining unchanged 230.0¢/lb. However, in Aussie dollars, the indicator weakened 1¢(<1%) on the back of slight exchange rate appreciation against the US greenback, closing the week at 750¢/kg swt. Australian cow prices continue to slump, with the medium cow index falling back 19¢(7%) to 254¢/kg lwt this week, as US grinding beef demand remains slack. Next year may see some improvement if there are any signs of slowing US slaughter, and general economic conditions show indications of improvement as China emerges from it’s mostly COVID policy induced slowdown, but it probably won’t be in early January as US freezers are still well stocked at this point.

The week ahead….

In 2021, and 2022, we saw the average monthly EYCI open in January on a strong note, well above the level seen the prior December. For 2023 though, the opening note for pricing could be a lot softer, as the pullback in supply can only be sustained so long, and it’s doubtful that a lot of solid bullish evidence about global prospects will emerge over the holiday period- though preliminary indications on consumer spending trends in the US, China and the EU will be worth watching.

With plenty of grass still around, If sellers continue to take the option hold off marketing cattle, we could see some sustained stability in the market, but at this stage, the feeling is that if a flood of cattle come to market again, it’s likely that prices could dip quickly again in the new year, unless restocker confidence and demand returns. Feeder cattle demand continues to be an area of concern. One thing we will be watching carefully is the results of the usual VIC weaner sales in January which could set the tone for the year.

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Data sources: MLA, Steiner, Mecardo

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