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May marks the month when supply traditionally peaks for the winter, and true price direction is revealed after the disruption of April’s holidays. The result has been the biggest weekly surge of supply seen since November 2020, and young cattle prices have dipped accordingly.

The Eastern Young Cattle Indicator (EYCI) buckled under pressure, shedding 24¢ (4%) this week, closing at 647¢/kg cwt, yet another new record low for the year. Whilst on Monday we saw prices holding initially, as the week progressed the value of young cattle steadily spiralled lower.

The cause for the collapse of support for young cattle is undoubtedly supply-driven, with EYCI eligible yardings for the week spiking by 119% on the prior week to reach the largest weekly east coast offering of young cattle seen for at least the last nine months. Compounding this, at 58,503 head, 57% above the prior week, it was the biggest offering since November 2020 for total yardings across all specifications, highlighting the sheer amount of cattle on the market this week.

Not surprisingly, with the disruption of ANZAC day dragging on demand, slaughter numbers, at 96,428 head for last week were down 14% on the week prior. The good relative support that can be observed for cow prices, and heavy cattle this week is in line with the prediction that a return to high, if not record weekly beef production has occurred. The good news is that if history holds, this may just be the start of a solid ramp-up in demand for finished cattle.

In contrast to the woeful price performance of young and restocker cattle, cow prices surged 8% to 281¢/kg lwt (521¢/kg cwt). This was despite the downward drag created by a huge yarding of 10,276 head across the East Coast; which was 75% above the prior week and well above what average supply levels for cows normally look like.

Similarly, stability in the heavy steer price again pointed toward solid demand for finished cattle by processors this week. Feeder steer prices also held up at 355¢/kg lwt, with the 54% increase in supply easily soaked up by the market, which is in line with reports that feedlots are actively continuing to buy in after a shortage of suitable stock in April.

Argus is reporting that an extended wet season is being experienced in the west and north of Queensland at present, which has pushed back mustering up to two months compared to prior years. This is expected to result in an increase in QLD finished cattle supply further into winter. This explains some of the stubborn firmness in finished cattle markets presently, but it is an indication that the situation could turn around quickly.

The BOM’s Autumn outlook reveals a discouraging forecast for the pastoral outlook over the next couple of months. The BOM predicts a widespread deterioration in soil moisture driven by a dry outlook across a broad swathe of the country, with impacted areas including SA, VIC, and NSW, right up to southern QLD.

US imported 90CL frozen cow price stayed stable at 855¢/kg cwt, however, the native price in US dollar terms fell back 3¢/lb (1%) to close last week at 257.5¢/kg swt with some help from the exchange rate. This won’t last however, with the RBA’s latest hike in interest rates (Which I correctly predicted a strong risk of in our latest quarterly report) causing our exchange rate to March upwards again.

While US cash cattle and choice cutout markets have surged in the last few weeks, US analysts JS Ferrero cite that meat prices on US shelves have not yet been adjusted to account for recent increases in US wholesale rates, supporting demand. However, when prices are finally hiked post-Memorial Day in Q3 consumers are likely to pull back on beef consumption.  On the brighter side, Steiner reports that total Chinese beef imports are up 4% month on month, but it is expected that higher prices and reduced supply will cut into US beef exports to China over Q2, and be replaced, at least in part by Australian product.

The week ahead….

This week’s monster yarding and intense supply pressure was partly driven by skipped sales in many parts of the country last week, however, the 5-year average of cattle yardings indicates that there is potential for supply to continue to flow at strong levels for the rest of May. The BOM’s outlook is less than encouraging, and the late flow of finished northern cattle is still to come, so it’s hard to see any sustained upside in cattle markets in the near term.

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

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