EYCI breaks new frontier

Yet again, cattle prices have continued to break new records this week. After surging through the 700¢/kg cwt mark at the close of Tuesday’s markets, the Eastern Young Cattle Indicator (EYCI) finished Thursday at 720.25¢/kg cwt, up 28.00¢/kg cwt week-on-week and 152.00¢/kg cwt above year-ago levels.

EYCI eligible cattle at a number of selling centres averaged above the 700¢/kg cwt mark this week. In particular:

• Wagga averaged 733¢/kg cwt
• CTLX averaged 742¢/kg cwt
• Gunnedah averaged 733¢/kg cwt
• Roma Store average 717¢/kg cwt
• Dalby averaged 711¢kg cwt
• Dubbo averaged 745 ¢/kg cwt

As has been the case in recent weeks, improved seasonal conditions this year has resulted in a marked increase in restocker competition. This week, for the first time since early 2013, restockers accounted for an equal portion of EYCI eligible cattle purchases (45%) as feeder buyers, with processors accounting for the remainder. EYCI eligible cattle purchased by restockers averaged 739¢/kg cwt this week, more than that of feeder buyers, at 716¢/kg cwt, and well above the processor buyers, at 681¢/kg cwt (albeit the EYCI is not the best indicator of prime cattle purchases).

Looking forward, three things typically happen to the EYCI from August to the end of spring (November).

1)    Prices ease. In seven out of the past ten years, the EYCI averaged lower in November compared to August – ranging from a decline of 2% to 20%. The only three increases were modest – 1% in 2010, 5% in 2011 and 3% in 2015 – and these were all very wet years.

2)    Restockers take a step back. 80% of the time, restockers have purchased a lower proportion of EYCI cattle, offset by a rise from feedlots. Interestingly, restockers purchased less in each of three wet years mentioned above.

3)    Processors purchase fewer EYCI cattle at the end of spring compared to the end of winter.

Whether or not these trends occur in 2016 remain to be seen, but if the average price decline were to be repeated, the EYCI would remain in the mid-600¢/kg cwt territory. The trend least likely to occur, for the first time, is processors taking any further steps back in the number of EYCI cattle purchased – especially considering the very low proportion of acquisitions they are currently making. The biggest unknown, though, and the dictator of where the EYCI eventually reaches a maximum price, is the depth of restocker pockets – which continues to surprise.

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