Markets

The heavier steer – ep3

Matt Dalgleish, ep3, 12/10/2022

 

The Snapshot

  • The AUD/USD declined from 71USc in mid-August to move below 63USc this week, a fall of 11%, which has helped push the Australian Heavy Steer back into discount price spread territory.
  • Analysis of the long-term price spread between the Australian Heavy Steer and the US Choice Fed Steer highlights that the percentage price spread runs at an average discount of nearly 30%.
  • During 2021 the price spread between the Australian Heavy Steer and the US Choice Fed Steer sat at extremely strong historic levels, averaging a 15% premium over the year.
  • The current price spread for the Australian Heavy Steer versus the US Choice Fed Steer is at a 7% discount. Normally for this time in the season the spread sits at a 12% discount.

The Detail

It has taken a few years but the Australian Heavy Steer has now moved back into discount price spread territory compared to it’s equivalent US counterpart, the Choice Fed Steer. In mid-2020 tight domestic supplies and the beginnings of a herd rebuild saw the Australian Heavy Steer price move ahead of the US Choice Fed Steer, holding a premium price through to mid-2022.

Foot and mouth disease concerns hit the Australian market during July 2022, which saw saleyard cattle prices tank, albeit briefly. Additionally, there were a few weeks of low saleyard volumes of cattle that met the Meat & Livestock Australia specifications for the Heavy Steer, which saw the price drop exacerbated somewhat.

After recovering some of the lost ground over late July/early August the Australian dollar began to fall against the US dollar, providing a competitive price edge for the Australian Heavy Steer versus the US Choice Fed Steer. The AUD/USD declined from 71USc in mid-August to move below 63USc this week, a fall of 11%, which has helped push the Australian Heavy Steer back into discount price spread territory.

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Analysis of the long-term price spread between the Australian Heavy Steer and the US Choice Fed Steer highlights that the percentage price spread runs at an average discount of nearly 30%, with a “normal range” between a discount of 10% to a discount of 45% as outlined by the grey shaded region.

Extreme movement of the price spread would be premiums above 7% or discounts below 63%. For much of 2021 the price spread between the Australian Heavy Steer and the US Choice Fed Steer sat at extremely strong historic levels with the annual spread in 2021 averaging a 15% premium.

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The seasonal chart of the percentage price spread shows just how uncharacteristic the 2021 season was, with the spread remaining at a strong premium and above the upper end of the “normal range” throughout the year. During July the spread returned briefly to normal level, even going under the average trend in the first week of July 2022 when the price discount spread widened to 22%.

The current price spread for the Australian Heavy Steer versus the US Choice Fed Steer sits at a 7% discount, as at the week ending 7th October. Normally for this time in the season the price spread sits at a 12% discount, at least according to the ten-year average seasonal trend, so presently we are pretty much back to normal pricing when compared to the US market.

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Comments

  1. Michael Vail, 13/10/2022

    Excellent analysis !!

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