Angus cattle

The strong supply pressure we saw over the last couple of weeks has abated, but it’s clear that demand is probably weakening, as prices are still slipping across the board. Signs are that processors are possibly hesitating as they assess the situation both here and abroad before continuing to take in elevated volumes of cattle.

The Eastern Young Cattle Indicator (EYCI) fell back slightly this week, closing at 614¢/kg cwt. Steers fetched 747¢/kg cwt at Roma Store, 679¢/kg cwt at Dubbo, 639¢/kg cwt in Dalby, and 643¢/kg in Wagga Wagga.

This week’s preliminary yardings figures indicated a week-on-week fall of 15K head (28%), down to 39K head. This placed the volume of cattle supplied at saleyards 18% below the 5-year average, signifying a substantial shift from the trend of historically strong cattle supply. The downward shift in offerings was led by QLD, where numbers fell by 44% week on week to 8K head, followed by NSW, which dropped back 22%. In contrast, offerings in VIC increased by 10% to 6,666 head.

The reduction in yardings was driven predominantly by good rainfall across QLD cattle country, which bolstered grass budgets and created logistical difficulties for some producers.

As expected, there is evidence that the lower prices in the market have supported increased processor buying activity, as demonstrated by elevated slaughter numbers this week, which pushed up 11K head (11%) week on week to 117K head. However, as processors work through the volumes picked up during the supply surge seen in the past couple of weeks, current buying activity may be subdued, partially explaining the apparent reduction in demand.

Looking at the historical slaughter chart, the processing industry has averaged 120-130K head per week in the past five years over the May/June period.  This indicates that there should be at least technical potential for increased numbers of finished cattle to be soaked up over the next month. The worry however, is, whether or not at current prices, a home can be found in the international marketplace for the quantities of meat that will be produced, If prices prove to be unpalatable to our export customers, or if processor capacity is curtailed for any reason, the only likely scenario is that market prices will fall.  A signal to producers to reduce supply and hold stock until conditions become more favourable. What transpires in the coming weeks in terms of slaughter activity will provide a strong indication of how resilient prices could be going forward.

The national indicators were mostly in the red zone again, with cow prices continuing their rapid spiral down, losing 15¢ (6%) to close at 209¢/kg lwt. Heavy and feeder steers also slipped lower, shedding 2¢ (<1%) and 7¢ (2%) to respectively close at 298¢/kg lwt and 332¢/kg lwt.

The US imported 90CL frozen cow price has continued to wind down with the price falling by another 17¢ (-2%) over the week, to close at 820¢/kg cwt. Again, the drop is being influenced by both native pricing in the US which retreated 3¢ (1%) to 250.5¢/lb, and an appreciating Aussie dollar against the US greenback. Since peaking in mid-April at 857¢/kg swt, 90CL has fallen a total of 38¢ (4%) over the last month.

The week ahead….

The fall in yardings is following the historical pattern we saw last year, however, the confidence that rain brings in the short term will inevitably wear off. This will lead to more supply coming online and continued pressure on prices, particularly for finished cattle. A lot hinges on the sustained appetite of processors for cattle, and a big boost in slaughter figures in the next couple of weeks would provide a welcome signal that would support confidence in the market going forward.

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Data sources: MLA, Steiner, Argus, BOM. JS Ferrero, Mecardo

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