Tight supply pushes EYCI to new record

The market was very upbeat this week, with the Eastern States Young Cattle Indicator (EYCI) notching up another all-time record level. Demand appears robust, with slaughter growing week on week, but supply continues to tighten in contrast, with the combined effect carrying the market higher.

Supply tightened again last week, with yardings backing off another 3% on the week prior, with the decline in numbers mostly coming out of QLD & VIC, which clocked up a respective 7% and 17% week on week reduction, offset by a 15% bounce in NSW offerings. History suggests that yardings will most likely track sideways to decline in the next couple months, putting further tightening in the supply/demand balance firmly on the cards.

A total of 39,062 head were yarded on the east coast for the week ending 20th of August, 2021, down 1,112 head from the week prior.

East coast slaughter lifted 10% last week, with all the additional demand coming from QLD, where slaughter grew 20% week on week. Around this time last year, slaughter was trending upward, while on average, demand remained stable, so further growth in processor throughput is looking more likely than not.

Overall, 100,062 head of cattle were slaughtered for in the week ending 20th August 2021, which was up 8,716  head on the week prior.

The EYCI reached another all-time record peak of 1,032¢/kg cwt on Wednesday, before settling back slightly to close the week at 1,028¢/kg cwt. Supply of young cattle was tight this week, with only 10,082 eligible cattle yarded, down 20% on the prior week, suggesting that we might see a sharp reduction in yardings being reported for this week when the numbers are released. Average Roma Store prices lifted to 1,049¢/kg cwt, while Dalby tracked at 1,002¢/kg cwt, and Wagga at 1,052¢/kg cwt

The National Categories saw Restocker prices advancing strongly, and Processor Steers staging a solid recovery from last weeks steep fall,  but Heavy Steer prices retreated against the trend.   

Restocker Steers pushed up 24¢(4%) to reach 617¢/kg lwt and Processor Steers followed suit, up 17¢(3%), gaining back most of last weeks losses to finish the week at 517¢/kg lwt. Feeders did not catch the trend though, falling 2¢(<1%) to 493¢/kg lwt.

In contrast, Heavy Steers lost 18¢(4%), coming to rest at 421¢/kg lwt. While not positive news in itself, recent history has shown these sharp declines in Heavy Steer prices are often followed by a equally sharp recovery in following weeks, so there is no reason for concern at this stage.

Medium Cows and Medium Steers shared in the positive sentiment, respectively gaining 6¢(2%) and 3¢(<1%) to settle the week at 333¢/kg lwt and 430¢/kg lwt.

The Aussie dollar recovered from its fall last week, notching up a 1.4% gain, bringing it up to 0.723US. The strength in the US dollar was influenced by statements from members of the US federal reserve expressing concern that steps may need to be taken to control inflation in early 2022, which pushed bond yields, and hence return on cash, higher.

US 90CL frozen cow prices last week advanced 17¢(2%) to 826¢/kg swt. This did not come as a surprise, as most of this gain emanated from the weakness in the Aussie dollar last week, with underlying US prices only climbing 1¢ to 270¢/lb. US beef prices continue to be supported by limited supply of imported product, and on the domestic front, labour shortages continue to constrain US processor output, with buyer sentiment now starting to shift towards expectations of further protein price inflation for the rest of the year.

Commodity Conversations

The week ahead….

As we transition toward spring, 5-10mm can be expected to grace most of the far east coast, with VIC set to receive 15-25mm across most of the state, and parts of Northern QLD could receive a solid dump of 50mm. With young cattle yardings having plunged this week, and history suggesting that it’s unlikely that a lift in yardings can be expected over the next month or two, supply may only tighten further. Couple this with slaughter trending upwards, pricing can be expected to remain well supported for some weeks ahead.

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Data sources: MLA, Mecardo, BOM

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