Mecardo The recipe for higher cattle prices

The best recipe for stronger cattle prices is strong beef export values, and rain. The last week has delivered on both fronts, with major livestock areas in NSW and Queensland receiving autumn rain, and manufacturing beef prices heading towards record levels.

We have been hearing a lot about floods in the Blue Mountains, but it is the western side of the Great Divide that we are really interested in. Large parts of southeast Queensland the western slopes in NSW have received one and a half to three times their normal April rainfall in the last week.

Supply will be tighter this week on the back of both transport issues and potential grass growth. Ongoing it will be grass that will see more cattle, especially female cattle, staying home.

Figure 1 shows the demand side of the equation which might help pull cattle prices higher over coming weeks. The 90CL Frozen Cow export beef price to the US has rallied strongly over recent weeks. Since hitting a low of 741¢/kg swt back in mid January, the 90CL price has been in a state of constant incline to hit a four and a half year high of 930¢ last week. That is an increase of 25%.

The record 90CL price in our terms was hit in late 2019, at 968¢. The peak in US terms came a year and a half later. We can see in figure 1 that the 90CL in US terms has another 10% to rally before hitting the previous ceiling. That would equate to a 90CL price in our terms above 1000¢/kg swt.

Back in early March we produced figure 2, and it’s worth another look given recent events. Figure 2 charts annual cattle slaughter against the 90CL-EYCI spread. The trendline shows how tighter supply gives a stronger EYCI relative to the 90CL price.

Figure 3 shows the current 90CL-EYCI spread is sitting at negative 330¢. This would literally sit off the chart on figure 2. The forecast cattle slaughter for 2024 would have the EYCI at a 60¢ discount to the 90CL.

At the current 90CL and price, and the forecast supply for 2024, the EYCI should, in theory, be sitting at 870¢/kg cwt. The market is never wrong, and at the moment it is the level of supply which is higher than the annual forecast, and this is keeping a lid on prices. Even with the good rain, it’s unlikely we’ll see supply tighten enough to see the EYCI back near 900¢, but there could still be plenty of upside as we move into winter.