Rain tipped to send EYCI off again

Rain tipped to send EYCI off again

Beef
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Should traders be comfortable with current young cattle prices?

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RAIN across significant swathes of beef-producing country is expected to exacerbate typical October tightening of supply and push young cattle prices skyward again.

The regular run of new records being set by the Eastern Young Cattle Indicator, and the strength in numerous other cattle categories, is now creating strong talk within the industry of the unsustainable nature of having the world's most expensive cattle.

While ongoing pasture growth continues to support producer demand against the backdrop of a severely depleted herd, the business of trading cattle is arguably approaching volatile territory.

Agents are hesitant to predict how demand from traders will play out over the next few months.

Analyst modelling is still indicating the risks of losing money at these high buy-in prices is pretty slim, but a number of industry stalwarts say profits are edging towards being too reliant on maintaining, or reducing, costs of production per kilogram.

Matt Dalgleish, from Thomas Elders Markets, ran a scenario which showed that buying young cattle at an EYCI level of 1040 cents a kilogram carcase weight, or $5.50/kg live weight, and selling in 2022 at the forecast average estimate of $3.50/kg would bring a profit of $200 a head.

That scenario involves buying young cattle at 300kg and selling as 600kg steers, with a turnaround period of 12 months, which agents say is more than possible in many areas at the moment given the good feed base. A $250 per head cost of production is factored in.

Mr Dalgleish believes it will be young cattle purchased next year that will present the bigger risk to traders.

It's unknown exactly when the trader shy-off, and the dissipation of urgent demand for cattle, will kick in.

But everybody knows it's coming and nobody wants to be caught in the middle, agents say.

Rabobank's October Agribusiness Update says the percentage of female cattle in the total NSW slaughter has been in the high 40s since May, reflecting cattle bought late last year as a trade.

However, that percentage is now dropping into the lower 40s, perhaps signalling an end to these trade ventures and a stronger rebuild focus, Rabobank senior analyst Angus Gidley-Baird said.

That will take some of the heat out of the cattle market.

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Meanwhile, the production improvements that are flowing from increased on-farm investment in everything from genetics to agtech as a result of better farmgate returns will likely pay solid dividends to the industry as a whole for many years.

Queensland consultant John Bertram reported investments include short-term on-farm feedlots to incorporate an ability to respond to market movements - that is to better target markets where the more attractive returns are at any given time.

"There has been a lot of investment in ensuring the ability to deliver an animal at short notice," Mr Bertam said.

"There has also been a lot of effort put into improving fertility in herds, which is a big driver of profitability in the north."

Many had lifted conception rates to between 89 and 93 per cent out of three to four months of mating, using scanners to select and cull. That is a 20-30pc increase, Mr Bertram said.

"Replacement heifers are now a much tighter group, selected on performance," he said.

"What is terrific is the good returns able to be achieved for the sale of empties, and a few pregnant females, has funded very valuable production improvements."

The story Rain tipped to send EYCI off again first appeared on Farm Online.

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