You can’t watch free-to-air television these days without seeing an advertisement for an online gambling company. These ads are always accompanied by a warning on the dangers of gambling. Trading cattle should probably come with such a warning, as we’ve seen some value stripped out of the market recently, but this might just be an opportunity.
Store cattle markets follow the Eastern Young Cattle Indicator (EYCI) closely. Figure 1 shows the EYCI, the Online Young Cattle Indicator (OYCI) and the National Feeder Steer Indicator. All three prices move in unison, which is to be expected.
When store cattle are highly sought after, like in 2022, the OYCI traded at a strong premium to the EYCI, which was in turn at a premium to the Feeder Steer Indicator. When grass is abundant and weight gain is cheap, the lighter the animal, the stronger the ¢/kg premium.
The winter/spring price rally added around 100¢/kg lwt to the OYCI, which is a good 25% rally. Markets often retrace a little after a strong rally, with the OYCI having lost 9% from its peak but remaining just above 450¢/kg lwt last week.
Apart from maybe being a little overbought, the fall in all cattle prices, and store cattle prices in particular, can be attributed to Figure 2. A dry start to October, after a dry last ten days in September, is sapping restocker demand. Supply in the OYCI has fallen, possibly as cattle are passed in on lower prices.
The forecast for the remainder of October is not great for rainfall, and this is no doubt impacting demand. The forecast for November to January looks a lot more promising.
Figure 3 shows a strong chance of exceeding median rainfall across most of the east coast, and a very strong chance in drought-stricken areas in the south.
According to the Bureau of Meteorology (BOM), the historical accuracy of forecasts derived in early October is quite good.
What to make of this information? The market will pay at least 50¢ more for store stock if conditions improve. According to the BOM, there is a strong chance conditions will improve in the November to January period. There is a strong chance prices will return to 500¢ and possibly higher.
When considering any trade, it’s important to make calculations and decisions on a case-by-case basis as freight, administration, feed and other costs vary.
What does it mean?
A fair bit swings on how much you trust weather forecasts. A dry November could well see the OYCI back in the low 400¢ range. If we put faith in the BOM forecast, the current decline in store cattle prices is a trading opportunity. Gamble responsibly.
Key Points
- Record young cattle prices are being driven by feeders and restockers
- Feeder and finished cattle prices are likely to fall in late spring and early summer.
- With a mild decline, there is still some margin in growing out weaner steers, and this is supporting store prices.
Click on figure to expand
Click on figure to expand
Click on figure to expand
Data sources: MLA, Mecardo
