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Optimism stoked the Australian cattle market

Indicators favoured a strong cattle market in Australia but time will tell if strength will be maintained

Earlier this year I participated in a webinar sponsored by Meat and Livestock Australia and came away with some incredible optimism and understanding more clearly why the Australian cattle frenzy is continuing. The stars are indeed lining up in 2015 for Australian cattle producers and the new record prices set on a daily basis from all corners of country don’t seem to be slowing anytime soon.

What has spurred on such optimism has comes in variety of ways.

  • The continuing declining dollar, which has gone from par against the American “greenback” to now just in the mid- to high 70s,
  • While there are still lingering droughts in some parts of the vast expansive cattle country in Queensland and New South Wales, other areas have gone from destocking to restocking,
  • Exports to the U.S., China, Indonesia, Japan and Korea are going extremely well. The Chinese market is especially strong with a 10-fold increase in exports from 2013 to 2014,
  • Exports to the U.S. are highest in 2014 with 70 per cent of the Australian export of beef heading in that direction and likely to increase even more.
  • The weather forecast is showing an 80 per cent probability of above-average rainfall over the coming months. Optimism for good grass growth not yet been dampened by an El Niño forecast for later.

Strong feeder market

The feeder cattle market is understandably hot as well with an unusual phenomenon of heavier cattle selling at a premium over lighter stock. Our 660-lb. heifers purchased in November 2014 for $0.65/lb. sold here in April to a local feedlot for $0.91/lb. It was welcome to see a gain of $0.26 along with the 220 extra pounds.

But we accept this scenario will likely not be repeated for a while. Lighter calves have since picked up reversing the anomaly of the bright forecast for finished cattle. These prices are in Australian dollars but the Canadian and Australian dollar relative to the U.S. are pretty even.

The Australian Eastern Young Indicator (EYCI) is the general benchmark of Australian cattle prices. The indicator is a seven-day rolling average produced daily by Meat and Livestock Australia’s National Livestock Reporting Service. The EYCI includes young weaned or yearling heifers and steers with a grade score of C2 or C3 or of well-muscled cattle. The four-year-old bullocks coming to market from the cattle stations in the outback, which I wrote about in a previous article, are obviously not part of the EYCI. This is perhaps the reason for the term Eastern Young Cattle!

The EYCI is in essence similar to the fat market in Canada and has continued its upward gains and record breaking almost as a daily occurrence. Earlier speculations of prices hitting above 500 c/kg ($2.27/lb.) came to fruition in June. A year ago prices were 160 c/kg lower.

During the webinar we also heard cattle producers are likely to enjoy these good times for a little while longer. Historically the Australian prices have been approximately 80 per cent relative to the U.S. So where does this leave us? Are the Australian prices going to gain further or will the prices in the U.S. soften?

The USDA slaughter cattle report of May 12, 2015 showed average prices of heifers and steers around US255 cents/lb. With an exchange rate at the moment of $1.24 Australian for one greenback this would equate to 252.96c/kg Australian (255 x 0.124 x 0.8). In other words there is still a discrepancy of about 30 cents/lb between Australia and the U.S.

When I left Australia a few months ago I had just finished seeding some more of our Alcheringa Pastoral to pasture. Come late October, when I return to this part of the world, we will be back into grazing Australian feeder cattle. Buying grass cattle in this buoyant market is not for the faint at heart, but with a discrepancy of 30 cents before the Australian market is fully aligned with the U.S. and good winter rains in the forecast to boot the Aussies would rejoice “she’ll be right mate!”.

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