Cattle prices remain highly dependent on season

Phin Ziebell, NAB Agribusiness

The impact of seasonal conditions on restocker interest has been the major driver of Australian cattle prices over the past 12 months, and is continuing to make forecasts difficult.

The latest In Focus: Beef report from NAB Agribusiness says restocker interest is likely to keep prices up in the short term.

However, the Bureau of Meteorology outlook, for below average rain in key cattle regions with summer-dominant rainfall, has the bank predicting the Eastern Young Cattle Indicator (EYCI) could fall below 500c/kg in 2018.

NAB Agribusiness Economist Phin Ziebell says the timing of any downturn is difficult to predict, amid erratic weather patterns.

“Australian producers have enjoyed a great run, with the EYCI hitting record levels in September 2016.

“Prices have trended downwards in 2017, but jumped again with recent rain in Queensland and New South Wales,” Mr Ziebell said.

“The Bureau’s latest outlook for a drier than average summer in Queensland, the Northern Territory and northern New South Wales is likely to reflect negatively on cattle markets, if it comes to pass.

“An eye to risk management for producers will be critical during the next few months so they are not overexposed to big price fluctuations, not just on the downside but also the upside if we do see some summer rain.”

Slaughter data in September 2017 shows bulls and steers up 6.7% and cows and heifers up 8.5% year on year on a per head basis. It is likely that October 2017 and November 2017 data will show lower slaughter, reflecting recent dynamics due to the weather.

Mr Ziebell said global trends are also likely to put downward pressure on Australian prices.

“The real question is to what extent saleyard prices simply reflect grass fever rather than global fundamentals.

“After a massive drought in the United States in 2011, the herd rebuilt rapidly; from 2013 to 2017, there was 4.8% growth in total herd and a 6.5% rise in cow numbers. Since this peak, US indicators have been significantly lower, largely due to cheap feed grain.

“This has been compounded in emerging markets such as China, where the low cost of South American beef has been a major challenge for Australian exporters.

“Our view is that Australian prices cannot remain detached from global fundamentals forever.”

Source: NAB

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