PRICES for weaners were at four-year lows in December and not much has changed come January for the Victorian Weaner festival. In 2018, we saw pasture conditions deteriorate and grain prices rise, neither of which are good for young cattle prices. Unfortunately for sellers, the early rain in December didn’t continue through the Christmas and New Year period. But for those who are buying, the lack of rain has been good news for prices.
Readers who have been with us for a few years will know we have a couple of measures of value in young cattle markets. Looking at the absolute price is obviously what vendors are interested in, as it drives their bottom line. For buyers, the value is determined by how much money can be made out of backgrounding or growing out cattle.
The margin in backgrounding fits well with looking at value in terms of the price of weaners relative to the Eastern Young Cattle Indicator (EYCI). This spread gives a good idea of restocker demand relative to the young cattle market as a whole or compared to feeder and processor demand.
Weaner steer prices have opened January at a four year low, but remain well above historical averages. For 2019 we have estimated a price based on recent reports out of Mortlake and Yea last week, with weaner steers coming in at around 300-320¢/kg lwt (Figure 1). The Weaner premium to the EYCI at 9.5 per cent is a three year low, but interestingly, still ahead of previous drought impacted sales. Returns from backgrounding or growing steers out to heavy steers could be described as good to very good based on a conservative projection.
What does it mean?
It seems lotfeeders and backgrounders have become quite comfortable with export feeder prices around 300¢/kg lwt. If weaners sell for 310¢, there is a historically good gross margin in growing them out and selling at 300¢ (Figure 2). There is plenty of room for upside in the margin, and downside seems limited. Those with a positive outlook on feeder values could still justify purchasing.