The relationship between the price of young cattle and the finished end of the market are showing the effects of an extended dry period.
In an average year, the Eastern Young Cattle Indicator (EYCI) trades at a premium to the heavy steer indicator (finished cattle). However, expensive stock feed and a lack of pasture has seen the supply of quality finished cattle tighten and demand factors have further strengthened the position of Australian beef in the global marketplace. These forces continue to impact farm gate prices, with heavy weight cattle attracting price premiums over store condition cattle.
This year has seen the largest premium of the heavy steer indicator over the EYCI in the last decade. In March, the average heavy steer sold in saleyards traded at a 12%, or 57¢ premium to EYCI eligible cattle. However, since 2010 the EYCI has averaged 28¢ more than heavy steers, highlighting the change in market dynamics at present.
While the EYCI has consistently traded higher than finished cattle since 2010, the margin often varies depending on the season. During the summer months, when northern production regions typically see their best pasture growth, fattening cattle on-farm is easier. This adds price support to young cattle, demonstrated by an average EYCI premium of 42¢ over heavy steers during January. Through winter, this declines to 23¢, while in September, when weaner sales are kicking off and spring pastures are yet to take hold, the average EYCI premium is just 21¢.
With the Bureau of Meteorology forecasting a drier than average winter for much of the country, challenges in adding weight to finish cattle will likely remain. The success of the winter crop will play a role, as conditions similar to 2018 will likely see grain prices remain at historically high levels. Robust international demand and a low Australian dollar will also add price support to finished cattle. Combined with limited pasture heading into winter it will be interesting to see whether the disparity in prices between young cattle and finished cattle widens further.
Note: Heavy steer indicator specifications: weight - above 500kg, sale prefix - grassfed (processor), muscle score - C, fat score - 4
© Meat & Livestock Australia Limited, 2019
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