Recent rain alleviates price pressure, but what's in store for the EYCI?

Cattle prices find support following recent rain, however, the seasonal outlook could bring further volatility.

Key points

• The Eastern Young Cattle Indicator (EYCI) jumped 7.5¢ following Tuesday’s markets.

• Cattle prices will find support in the immediate term from recent rainfall.

• Queensland adult cattle slaughter declined 3% compared to the same period last year, to 64,538 head (week ending 23 February).

At the beginning of the year, the Bureau of Meteorology’s (BOM) seasonal outlook suggested favourable conditions for northern restockers, which would support Eastern Young Cattle Indicator (EYCI) eligible cattle. However, as February ends, conditions have been less than supportive and cattle prices have come under pressure as a result.

Since the markets recommenced in January, the EYCI has declined 5% (28¢) and is back 13% (80¢) when compared to the same period last year – currently trading at 533.25¢/kg carcase weight (cwt).

There has been some good rainfall over the last few days in some dry areas of Queensland. However, it has not been widespread, with western Queensland still looking for some much-needed rainfall. So far, the impact has seen a lift for the EYCI – 13.25¢ higher on last week - as saleyard throughputs have seen a reduction this week.

Yardings at Roma on Tuesday 27 February were reported at 7,723 head, back 3,442 head on the week prior, as stock was held back following the recent improved conditions.

Last week, the number of Eastern Young Cattle Indicator (EYCI) eligible cattle (C2 and C3 yearlings and vealers sold through MLA reported saleyards in eastern states) totaled 16,431 head, 4% higher year-on-year. However, the proportion purchased by restockers remained below that of last year at 40%, with feeder buyers accounting for 47% of purchases and processors making up the difference.

The recent rainfall will support renewed restocker appetite in the short term but competition with feeder buyers will continue. Restocker buyers have also maintained the premium for EYCI eligible cattle, with a 28¢/kg and 35¢/kg cwt premium over that paid by feeders and processors.

Autumn outlook

The next three months will be important for how the markets are set heading into the winter as producers look for some good rainfall before the wet season ends.

When looking at the pre-drought five-year average (2008–2012), the EYCI has historically tracked 2% (or 9¢) lower between March and May. This could provide an indication as to how the cattle markets may track in the months ahead. However, in recent years there has been some significant swings over the same period caused by varying market dynamics.

In 2013, the EYCI declined 41¢, as plentiful supplies saw the indicator trend lower, more than offsetting a good break in conditions. In contrast, in 2015 the EYCI lifted 53¢ over the same period, accelerated by robust demand from the US and restockers anticipating a cattle shortage leading into a herd rebuild.

When looking at the last two years for the March to May period, the impact of a solid seasonal break is evident. In 2016, a dry April across the entire country pressured cattle prices lower, with the EYCI declining 25¢. Fast-forward 12 months and the impact of cyclone Debbie saw large parts of eastern Queensland and northern NSW record highest rainfall levels on record, reflected in the EYCI jumping 37¢ during the autumn months.

In the latest BOM autumn (March–May) rainfall outlook, the prospect of a decent break for large parts of central and western Queensland looks unlikely, with a drier than average Autumn forecast for most of the nation.

Going forward, seasonal conditions throughout 2018 will dictate market dynamics, particularly restocker demand and the availability of young cattle. Given, the aforementioned BOM seasonal outlook we may see the EYCI come under some pressure later in the year, with an approach towards 500¢/kg cwt possible, if it dipped below this level it would be the first time since June 2015.

However, in the short term prices should find support from tighter supplies in the weeks ahead. For the week ending 23 February, Queensland slaughter eased 2% on the week prior and given the recent rain, further reductions could be in the pipeline.