Insights March 2021
Insights March 2021
- Australian young cattle prices may have passed their peak after supply increased in February following a sluggish start to 2021.
- Supply will continue to remain well below average and combine with ongoing strong restocker demand to offer support prices, however the autumn break will influence the level of restocker demand.
- The limited ability for heavy cattle prices to rise due to competition in export markets and a rising Australian dollar will reduce margins producers can make on young cattle purchased at current prices and prevent the EYCI climbing any further.
Young cattle prices in Australia may have passed their peak as the Eastern Young Cattle Indicator (EYCI) eased three per cent from a record high of 888.25c/kg in late January. While continued tight supply and strong restocker demand are expected to keep offering support to prices, there are some headwinds which are likely to prevent prices climbing any further.
Cattle prices will continue to receive support from restocker demand, however the strength of restocker demand will be heavily influenced by the autumn break which currently appears favourable for producers seeking to increase herds.
Average weekly cattle slaughter in February increased by 33.2 per cent from January which contributed to the easing of prices. Despite the month-on-month increase, slaughter remained very tight, down 30.1 per cent compared to the 10-year average for February. Tight supply is expected to remain a key factor offering support to prices in the coming months.
Beef export volumes will remain constrained by tight supply. This will continue an already slow start to the year for exports in which Australian beef export volumes in January and February were 32.4 per cent lower than 2020. Export pace to the United States (US) was particularly slow, with volumes down 52.1 per cent compared to 2020. Demand from the US could improve in coming months as the grilling season approaches and coincides with greater optimism in the COVID-19 recovery.
A major headwind to further rises in young cattle prices is the widening gap to heavy cattle prices and a limited ability for heavy cattle prices to move higher and close the gap. While restocker demand has pushed the EYCI higher, competition from cheaper alternatives in export markets and a rising Australian dollar is keeping heavy steer prices constrained, albeit at a relatively high level. The national heavy steer indicator is currently 21 per cent lower than the EYCI, a much wider gap than the average of 8.2 per cent. The limited margins that producers can achieve while such a disconnect exists in the market will likely place prevent restockers driving the young cattle market any higher than the peak seen in January.
Source: Meat & Livestock Australia