Why is the EYCI rising?

Why is the EYCI rising?

Beef
This year, young cattle have remained strong and even rallied.

This year, young cattle have remained strong and even rallied.

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The Stock Take: Mecardo's Angus Brown analyses the Eastern Young Cattle Indicator .

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During a dry spring, you can almost guarantee young cattle prices will fall.

The lack of grass and rising grain and fodder prices usually see young cattle being offloaded.

This year, young cattle have remained strong and even rallied.

Given the seasonal conditions, we'd expect a similar trend in prices to the 2006 season (Figure 1).

So how is it that the Eastern Young Cattle Indicator (EYCI) has managed a 5 per cent rally when it should be tanking?

We think that record export prices and continuing strong finished cattle prices are pulling young cattle prices higher.

There have been reports of an increase in the supply of heavy feeder steers and finished cattle, and prices have eased a little.

FIGURE 1: Victorian Mutton Indicator. The EYCI did follow the 2006 trend from August to September, however October has seen a turnaround in price trends.

FIGURE 1: Victorian Mutton Indicator. The EYCI did follow the 2006 trend from August to September, however October has seen a turnaround in price trends.

The falls in feeder and finished cattle prices have been minor compared to previous dry springs.

It's unlikely the supply of feeder and finished cattle is going to get any stronger over the next six months, so we might be seeing the low for prices.

The gross margins for buying young store cattle are very good, even at the lower end of the sell price scale.

The good gross margins are no doubt supporting young cattle prices.

Given the high cost of feed we must surmise that buyers, or holders, of young cattle either have feed in front of them or are banking on pre-Christmas rainfall.

What does it mean?

Gross margins on trading young cattle remain historically very good, but we know that is more than partly due to high costs of feed.

However, over the last few weeks, it seems demand has been outstripping supply.

Cattle supply should be lower this year, given the declining herd, and there seems to be enough grass around to see buyers taking advantage of the strong margins.

There might also be producers rolling the dice on early summer rain.

Young cattle will get much stronger when it does rain, and buying at current levels will look inspired if it does get wet.

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The story Why is the EYCI rising? first appeared on Farm Online.

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