Weather sentiment drives EYCI to two-year lows

Jon Condon, 12/09/2012


Click on image at bottom of page for a larger viewThe Eastern Young Cattle Indicator slipped to a two-year low this week, influenced mostly by prevailing dry conditions across much of the Eastern half of the continent.

The benchmark EYCI indicator dropped a further 5c between Monday and Tuesday, slipping to 362c/kg, down 7 percent from the recent high point of 389.75c at the end of July.

That’s the lowest point seen since November, 2010, when it bottomed-out at 360c.

Yesterday, the EYCI clawed back half a cent to close at 362.5c, but the general trend in the past six weeks has been down.

Looking at the attached graph puts the current level of the EYCI in better perspective, however. Even at today’s low levels, it remains above the five-year average, and rests a lot higher than the extreme lows of early 2010 around 310c. The heavy steer indicator price yesterday of 193c/kg also illustrates that prices have not yet deteriorated dramatically.

MLA chief analyst Tim McRae said the prevailing weather conditions, with well below average rainfall reported across many cattle areas during August and September, appeared to be driving sentiment.

“Any restockers appear to be just waiting to see when this next fall of rain is going to come,” he said.

“There’s a fair bit of concern evident through southern Queensland and northern NSW, with mild temperatures and high winds. Everything has just dried out compared with where things stood a month ago. An inch or two of rain would help restore confidence to where it was earlier, but at the moment, it is taking a bit of a battering.”

“If we get an early start to summer temperatures and no further rain, there could be some worried producers out there,” Mr McRae said.

He said comparisons with EYCI figures from this time last year were largely irrelevant, given how wet and damp the spring in 2011 was.

“In more normal years, it’s not uncommon for the EYCI does take a dip in the first few weeks of spring, because for a lot of places, they are still getting over the effects of winter on cattle and pastures, and waiting for that spring break.”

Adding some weight to the trend this year was the fact that many producers in both northern and southern Australia are now carrying bigger numbers, as a result of breeding-up after two good seasons in a row.

That may be exacerbating producer wariness about the weather conditions, mindful that with a few more cattle about them, any big seasonal deterioration could have a greater impact than normal.

“Coming off the last two years, with the abundance of feed and water that’s been out there, while the current circumstances are nowhere near drought, they may be getting a few people taking a more defensive position, numbers wise,” Mr McRae said.

Weather patterns over the next four to six weeks would provide a better indicator of the direction of the EYCI, going forward.

“I think we might be seeing a few producers clearing out some big numbers in recent weeks – mostly the big heavier lines they have been carrying for a while. We still expect to see bigger numbers of heavier slaughter cattle coming to market in coming weeks,” Mr McRae said.

While in itself, that trend will not directly impact on the EYCI, which is based on young cattle (see composition below), if conditions remain reasonable, some of those sellers might see 360c/kg as a buying option, filling up those empty spaces in paddocks with lighter cattle.

“But at the moment, everyone’s watching and waiting for some rain,” Mr McRae said.


How is the EYCI compiled?

 The Eastern Young Cattle Indicator (EYCI) is the general benchmark of Australian cattle prices, representing a seven-day rolling average produced daily by MLA's National Livestock Reporting Service.

It includes vealer and yearling heifers and steers, grade score C2 or C3, 200kg+ liveweight from saleyards in NSW, QLD and VIC. The results include cattle purchased for slaughter, restocking or lotfeeding and are expressed in c/kg carcase weight.  




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