Cattle prices stay high for only so long

How long can Australian cattle prices remain so high?

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Cattle prices are reaching dizzying heights, but at some point when cattle numbers build prices will come down again.

Cattle prices are reaching dizzying heights, but at some point when cattle numbers build prices will come down again.

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The last five years have been some pretty astounding times for the beef industry, with huge peaks in prices in 2016 and then again this year.

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The last five years have been some pretty astounding times for the beef industry, with huge peaks in prices in 2016 and then again this year.

But records aside, what is the longevity of these high prices?

We are now entering the seventh month since the EYCI broke through $7, lifting close to or above $7.50 for much of this time; recognising the EYCI was not reported due to Covid-19 through March to May. This represents the longest and most consistent peak in the market that we have seen in the history of the EYCI.

In 2016 the prices were at their high points for two months, before easing off but staying high for a following eight months before dropping further. Prices also peaked in March 2011 but dropped 50 cents by July, before recovering again in January 2012.

What is interesting is that looking at rainfall figures across the major selling centres on the eastern seaboard we haven't seen the same rainfall we have in previous drought breaking situations. It was wetter in 2016, 2010/11 was wetter for longer and 1998 saw a change in seasons that was followed by close to average rainfall for three years.

In each of these cases the prices did not stay at their peak for as long as we are seeing at the moment.

As such, improved seasons and willingness of producers to buy cattle are not the only reasons for the high, sustained prices.

Herd inventory levels are estimated to be at their lowest levels for 20 years. Low breeding stock produces less weaners, so supply would be down. No doubt some Queenslanders are seeing NSW buyers active in the market as they search for cattle. But low inventory numbers also means many producers have more physical capacity to increase numbers and are therefore looking for more replacement cattle than normal.

So, financial considerations aside, improved seasons, lack of supply and capacity to grow are fuelling this market - but for how long?

Logic would suggest that prices will remain high as long as those three factors continue to play out, and if the season holds that means until inventory and supply start to recover.

We saw a similar situation in the US back in mid-2014. When the US came out of drought in 2014, their national beef cow inventory (28.95 million) was at the lowest point in over 30 years.

Like us, they saw calf prices skyrocket. Oaklahoma city calf prices jumped from around USD170/cwt (AUD3.90/kg) in 2013 to a peak of USD320/cwt (AUD7.90/kg) in late 2014.

Prices did stay at their elevated levels for about six months before improved seasons and cattle numbers saw prices fall dramatically to reach USD140/cwt (AUD4.18/kg) in early 2016.

So while high prices for this length of time are not abnormal, we are starting to break new ground. Many factors will influence how long cattle prices can remain high, but at some point when cattle numbers build prices will come down again.

  • Angus is a senior analyst with Rabobank
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