Not so yucky EYCI

Article courtesy of Matt Dalgleish, TEM

The legends in the Meat and Livestock Australia data team have recently filled the saleyard price void for a selection of stock types. The price gap was caused by Covid-19 restrictions on their livestock market officers attending sale yards during March to May. This means there is now have some clarity on what young cattle prices were doing though the whole season. Analysts hate data gaps.

The seasonal price trend shows a mild 65c correction to the 700c/kg cwt level for the Eastern Young Cattle Indicator (EYCI) in late March/early April, but since then the trajectory has been for a reasonably steady grind higher. As of this week the EYCI is nudging 770c, close to 100c clear of the range we have seen it trading between for 70% of the time over the last five years.

The bulk of the strong price performance by the EYCI during 2020 was formed during January to March when prices rallied 55% from the season’s open. Restocking activity, boosted by a favourable rainfall forecast, has kept young cattle prices well supported throughout the Covid19 crisis.

A comparison of the price gain/loss pattern from the two most recent restocking/favourable rainfall seasons in the last decade (2016 and 2010) demonstrates just how strong the demand for young cattle during 2020 has been. In 2016 young cattle prices recovered from a 7% loss in May to see them post a 23% gain when the EYCI peaked at 725c during October.

During 2010 the EYCI saw much of the seasonal price gain occurring during quarter one with a 25% gain posted. The remainder of the 2010 season saw young cattle prices grind higher to finish up 38% from the season’s open.

The TEM fair value model for the EYCI considers key metrics that have been shown to influence young cattle prices; such as global cattle price levels, the Australian dollar, climate and supply ratios. Factoring in the current scenario we can see that the annual average EYCI of 712c for 2020 is nearing the upper end of the fair value range, according to the model.

Indeed, the upper end of the fair value range sits at 765c/kg cwt. This doesn’t mean that the EYCI cannot go any higher this season. However, it does signal that potential headwinds should be considered.

Finished cattle prices have remained firm during 2020 and this has helped underpin confidence in those chasing young cattle at these record levels. In an article published in August on the TEM website we outlined a grass fed trading margin matrix that showed with a heavy steer price at 350c/kg lwt there was still money in buying young cattle above 800c/kg cwt.

The Eastern States Heavy Steer Indicator closed at 368c/kg lwt yesterday. A move above 800c in the EYCI can’t be ruled out despite what the fair value model says. But expect some strong resistance between 830c-850c for at these levels “the computer says no!”.

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