What’s happening in the cattle market?

MLA Managing Director Jason Strong, explains the recent commentary around the Eastern Young Cattle Indicator (EYCI).

This year is very different year to 2022, especially in the cattle market. In 2022 the herd rebuild was very much alive as Northern Australia received its first above-average wet season since 2016. As we move through 2023, the herd rebuild is stabilising as paddocks become more heavily stocked and the weather normalises.

The Eastern Young Cattle Indicator (EYCI) is a price indicator for animals that meet the following specifications: vealer and yearling heifers and steers with fat and muscle scores of C2 and C3 and with live weight from 200kg to 400kg.

As such, it is an indicator that tracks future sentiment. It is not reflective of the majority of animals being transacted. Only 10% of EYCI cattle are purchased by processors – most animals that meet EYCI specifications are bought by restockers or feedlots.

As the herd rebuild enters a period of stabilisation, it is imperative that stakeholders in the cattle industry recognise this, and ensure they are using the correct indicators to understand pricing trends.

The EYCI is not the best indicator to gauge pricing trends, especially this year. As more finished cattle hit the market, producers and stakeholders should be following the processor cow or heavy steer prices more closely.

Following three years of above-average seasonal conditions, the national herd rebuild is now entering a period of maturation. As a result, in 2023 the national herd will reach its highest level since 2014, and in 2025, the herd is expected to reach levels not seen since the 1970s.

With more cattle available, there has been an increase in the number of cattle being sold and slaughtered. This higher supply of cattle has put downwards pressure on prices. At the same time, demand for young cattle, and especially young females, has softened as properties start to reach their maximum stocking capacity.

This increase in supply and softening of demand has impacted the young cattle market the most with the EYCI easing to sit at 565.05c/kg this week.

While this appears to be a significant drop, the price of young cattle in the 2020-2022 period was at historically high levels that were never seen before. During this three-year period, restockers were fiercely competing to secure whatever young cattle they could.

Every time a drought breaks, the price for young cattle surges before normalising after around two years – we experienced a similar trend in 2015 and 2016.

The processor cow and heavy steer indicators have not fallen by as much as the EYCI. The heavy steer price is back 10% less than the EYCI as there remains strong processor demand for animals and there are fewer finished animals than there are animals who were conceived or born in the last year.

As the young cattle in the herd reach processor weights, producers should look at these two indicators as they will be more reflective of the prices they are receiving.

As an industry we must not let the EYCI impact our sentiment too much, it is an indicator focused on rebuilding sentiment. Putting too much weight on the EYCI in the herd maturation phase could fuel further and unnecessary price drops.

The market is fundamentally operating the way it should in the first six months of this year, with supply, demand the cyclicality of the cattle cycle all playing roles in how prices are performing at the current stage.