Does rain fully explain the latest EYCI rally?

Does rain fully explain the latest EYCI rally?

Beef
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Is the young cattle market now irrational?

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THE unexpected latest rally in young cattle prices is being described as extreme and while rain goes some way to explaining it, there is now arguably an element of the irrational in the way the market is behaving.

The Eastern Young Cattle Indicator has jumped 36 cents a kilogram carcase weight in the past week to sit at an incredible 988.11c today, up 84c on four weeks ago and 242c above year-ago levels.

There is now suggestion it will hit the phenomenal benchmark of 1000c. Indeed many yards have recorded results over that point for some weeks.

It means Australia's cattle price is outpacing other key beef exporters. That puts heavy pressure on our competitiveness despite supply constraints in many nations pushing global prices upward.

Those prices are expected to remain at historically high levels for some time, adding to already-elated producer confidence courtesy of back-to-back good seasons and a positive weather outlook.

It's that cycle that is likely perpetuating upward EYCI movement at the moment but also making the situation volatile and sparking talk of little in the way of insight to explain the strength of this week's rally.

Meat & Livestock Australia analyst Stuart Bull said the latest 15c jump was driven by Roma saleyard, where 3000 more head of EYCI-eligible cattle were yarded with a large influx of weaners from one operation's annual sale.

Other producers would have been looking to cash in on the back of the extra buyers out for that offering, he said.

It is northern yards driving the current rally, analysts say.

"A look at rainfall over the past fortnight gives us a little insight as to why restockers have gone hard at Roma and other markets," Mecardo's Angus Brown said.

"July isn't usually a big rainfall month in Queensland, but the last two weeks has seen more than the July average fall across some areas."

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Speaking at an MLA Productivity and Profitability webinar last night, Mr Bull said the upward trajectory of the cattle market for the past two years had been driven by severely low supply.

Slaughter numbers are now at the lowest levels they have been in more than 35 years, he said.

Slaughter numbers are expected to sit at just 6.4 million head for 2021.

"In 2014, we killed the most cattle and that was 9.2m head so right now we are 30pc below what our highest figure is," Mr Bull said.

"It's a damning statistic which highlights how low supply is and we think the path back is going to be a slow burn, given our beef herd is rebuilding off such a low base."

Close to half Australia's beef production at the moment is a grain-fed product - that's a record proportion and has come in compensation for the retention of cattle on grass, Mr Bull said.

But it adds yet another dynamic to what is a constantly-changing beef trading landscape that in turn feeds back into cattle buyer decisions.

Japan is the front runner for Australian beef at the moment and a customer that wants a large amount of grain-fed, higher marbled product, Mr Bull explained.

China, meanwhile, remains the biggest importer of beef, so it is important to monitor developments in this market.

"African swine fever continues to bubble away with China's pork herd still rebuilding, so their demand for meat is going from strength to strength," Mr Bull said.

"That has created a reshuffle in the way exporters are functioning.

"The US has jumped in, attempting to tap into the premium market in China. But the US also has a large population which eats beef so Chinese prices have to compete with the US domestic market."

Demand in the US has been red hot and as that nation heads into peak grilling period, it is only expected to increase.

"The US had a successful vaccination period and consumers also have money in their pockets from stimulus measures," Mr Bull said.

"That US demand is potentially displacing some of the product going to China, whether it be from the US, from Australia or South America."

Meanwhile, Brazil has been the largest exporter to China but concerns are now emerging it may have overkilled and the Brazilian supply situation in future years is unclear.

All this means a general lower supply across the globe has set in.

Global cattle prices were starting to align more with what has been occurring in Australia but this latest rally has ensured our cattle remain the world's most expensive.

"That will put pressure on the finished end of the supply chain as we look to remain competitive," Mr Bull said.

The story Does rain fully explain the latest EYCI rally? first appeared on Farm Online.

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