Using historical precedence from previous years as a guide, Australian cattle prices should rise between now and early spring. However 2011 may prove to be an exception to that rule, due to some of the unprecedented factors currently influencing the market. It could be a period of unexpected change.
The big riders are the very high A$, weaker demand from the key Japanese export market and the much better seasonal conditions many producers in eastern and northern Australia are currently experiencing.
On balance, some price rise can be expected through to September, even given the current high level, especially for young cattle and cows – though probably less than what has been seen in the past. However current international and domestic influences must cast considerable doubt over the normal winter rises for Jap ox prices, both grassfed and grainfed.
With May traditionally providing a low-point for the cattle market, Meat and Livestock Australia’s market and analysis manager Tim McRae has done some projections looking ahead to the likely market through winter and into early spring.
Historic data from the NLRS national average weekly saleyard cattle prices and benchmark Eastern Young Cattle Indicator pointed to a typical improvement in cattle prices by the first week of September, compared with the May annual low-point, Mr McRae said.
“Indeed, since 1998, only once in the past 13 years has the EYCI failed to be higher at the start of September than in May, and that is also repeated for medium cows. The trend is even stronger for heavy steers, with prices higher in the first week of September, compared with the May low-point, for each of the past 13 years,” he said.
For young cattle, the EYCI over the past 13 years has increased on average 11pc from May to September, week-one. The largest increase (26pc) for the period was recorded in 2005, when the EYCI reached a then all-time high, fuelled by a shortage of young cattle in response the fallout from the banning of US beef to North Asia. The only year the EYCI declined for the period was in 2002, falling 9pc, when severe drought conditions gripped Australia’s Eastern states, with demand for young cattle evaporating.
EYCI outlook for 2011
For 2011, the outlook for the young cattle market through to spring is somewhat clouded by the already historically high levels, even given the decline in the market seen since Easter.
The EYCI fell to a low of 386.5¢/kg in mid-May and, even though this was back 9pc from the all-time high of 424.25¢ recorded in late March, it was still easily the highest May EYCI on record and more than 30¢ above the next highest May price of 355¢ seen in 2006.
“Thus, given the already high level of the EYCI, an average 11pc increase through to the first week of September could be seen as optimistic, putting the EYCI back up at all-time high levels. However, looking at the increases over the past five years, the EYCI has averaged a rise of 6pc, and removing 2008 (12pc), ranged from 3-7pc,” Mr McRae said.
Clouding the outlook for the EYCI over winter is the fact that many regions of the eastern states are already experiencing well above average seasonal conditions. While this has bolstered restocker demand and underpinned the historically high young cattle prices, the better season could also diminish the impact on the market from the traditional improvement in seasonal conditions and expectations heading into spring.
“Indeed, it has been a very long time since most cattle producers across the eastern states have entered winter with such an ample bank of feed, along with the prospect for bumper winter crops,” Mr McRae said.
Trends in heavier categories
For the heavier cattle categories, while the trend between May and September is just as clear as for young cattle, the market this year faces several demand factors that are weighing much more heavily in 2011. These include the A$, a sluggish Japanese market and stronger competition from the US.
On the supply side, the excellent 2010-11 season has seen a significant jump in carcase weights, and turnoff jumped throughout the past month, as is largely expected during May.
However this turnoff has also been accentuated by the difficulties in getting stock to market over the past year, following flooding and heavy rain across large regions of northern and eastern Australia.
Looking back at the past 13 years, national heavy steer prices averaged 10pc higher in the first week of September, compared with the May low-point. For 2011, with prices retreating 16pc since late March, falling to 316¢/kg carcase weight last week, an increase of 10pc could be feasible, but at this point looked optimistic, Mr McRae said.
Such an increase would heavily depend upon a range of factors, including a significant improvement in demand from Japan, depreciation of the A$, along with cattle supplies tightening from current levels.
For cows, the historical average increase between now and September is heavily influenced by seasonal conditions, again, something that may be less prominent in 2011. However, it should be noted, that the 15pc increase in prices for the past 13 years was heavily influenced by the very weak A$ throughout the first half of the past decade, with the average of 6pc for the past three years a better guide.
Like heavy steers, medium cow prices have eased over the past six weeks, falling 15pc between mid-March and mid-May, reaching a 2011 low-point of 272¢/kg. After such a recent decline, a rise in prices through to early spring could be more than likely.
However, any increase over this period would be influenced by the A$, export demand and how seasonal conditions impact supplies and producers' intentions to retain additional breeding numbers, Mr McRae said.
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