Markets

Are we closing in on the top of the market?

James Nason, 15/07/2016

Meat & Livestock Australia’s Ben Thomas says it appears the market is close to, if not already at, the top of cattle prices from a producer’s point of view.

The Eastern Young Cattle Indicator hit a new record of 660c/kg last week, before easing back over recent days to 656c/kg as of today.

Well-known Roma livestock agent Rod Turner from Landmark told Beef Central that in more than 40 years as a livestock agent, he has never seen a dearer sale than last week’s Roma store cattle sale.

Driving the record prices is a lack of supply. The Australian cattle herd is at its lowest point in 20 years, and weekly saleyard throughput is down 17 percent on this time last year.

Feedlots and processors are reporting a difficult trading environment and operating losses based on high cattle purchase costs and tight export market conditions, in the face of increasing competition from other suppliers, particularly Brazil. Most processors have started cutting back shifts to stem their exposure to losses.

While cattle prices are very strong, the fact they are driven by a lack of supply means many producers don’t have the cattle numbers to sell to fully capitalise on the higher values.

If they had more cattle to take advantage of these prices, the market wouldn’t be as undersupplied, and prices wouldn’t be as high as they currently are.

One leading agent this week said prices are unsustainable at current levels, but is confident the market will settle back to a new level well above where prices had previously been.

“I think it has gone beyond a sustainable level for everyone,” Peter Daniel, principal of Grant Daniel Long, said.

“We love to take the money, but it is very dangerous the way it is.

“The meatworks say they are all losing money, and I believe they are, and the feedlotters are the same.

“We’ve got forward contracts and everyone is trying to get supply, but there is only a certain amount of cattle that are available for everyone to buy, and there are not enough to go round.”

Mr Daniel predicted prices would come under pressure as supply of finished cattle begins to improve in September and October as the first oats-finished cattle come forward.

“There will also be some good cattle starting to come on line in the south, because they are going have a good spring,” Mr Daniel said.

Mr Daniel said that while current prices were unsustainable, they will settle back at a new median well above where they have been in the past.

Commenting in the metropolitan media this week, MLA’s Ben Thomas said the cattle market moved in a very distinct cycle every six to eight years and appeared to be close to the top of that cycle.

“At the moment it appears as if we’re very close to, if not at the top of, the cattle prices from a producer’s point of view,” Mr Thomas told The Age newspaper.

“The cattle herd is now down at a 20 year low, and that’s a big part of the reason behind the cattle market being so strong over the past 12 months,” Mr Thomas said.

However he said he was confident 2016 would remain a very strong year for the cattle market, because of expectations supply will remain very tight, and indications the Aussie Dollar is unlikely to strengthen.

Rod Turner from Landmark at Roma said this year’s oats crop across the Maranoa and down into northern NSW is looking like being one of the biggest in years.

Much of the Queensland crop was planted later in the season than usual, which meant that the crop would also be turning off oats-finished steers later than usual this year.

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Comments

  1. Todd Green, 16/07/2016

    I think it is a little harsh, David Slattery, to accuse MLA/Thomas of attempting to ‘talk the market down.’ Surely as a market analyst, he is obliged to call it as he sees it – and the industry levy payers should demand nothing less. To ‘say nothing,’ as you suggest, out of some vague sense of ‘loyalty’ to the producing sector would be not only unprofessional, but failing to fulfill his job contract. All too often, commentators suggesting that prices may move against producers are branded, as you have attempted to do, as ‘taking sides with vested interests’ (i.e. processors) when in fact they back their claims with perfectly valid, and rational economic argument about supply and demand.

  2. David Slattery, 15/07/2016

    It is a disappointment to see our industry head, Mr Thomas, taking sides with vested interests in talking cattle prices down. Cattle prices 40 years in the making! Perhaps our business head could be a little more up beat or not say anything.

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