Confidence and Sunshine Needed to Arrest Cattle Price Slide

The recent decline in the national cattle market has been substantial in the value of cents wiped off the benchmark EYCI. Dipping below 900c/kg this week would be both concerning for those that had done their sums on recent values with sales looming, but also those that purchased in the first half of the year. Indeed, leaning over the gate looking at cattle which are now far lower in value than the purchase price earlier in the year is never a great feeling.

The number of conversations and research undertaken in recent weeks has confirmed two main drivers behind the recent decline. A lack of sunshine and warmth and a lack of confidence, underpinned by very significant animal health and disease risks.

The confidence side of the market is a difficult “factor” to equate for the months ahead. The attention, and rightfully so, given by the livestock industry regarding the increased FMD risk in recent months has been proportional to the industry devastation that could be caused. However, it must be stated, that Australia is still holding all the trade and market access benefits it held prior to the spread of the disease through Indonesia. All the key market fundamentals that the red meat industry was touting prior to the escalation of the disease risk remain unchanged.

The red meat and livestock industry has its attention acutely focused on the issue and risks. Producer confidence will improve quickly when they feel the measures being taken to keep the disease out of the country are appropriately focused.

The great American football coach Vince Lombardi was quoted “confidence is contagious. So is lack of confidence”. The impact of the recent loss of confidence across the industry is substantial, but certainly not irretrievable.

Adding to the “confidence” issue is the successive interest rate rises in recent months, as well as higher operational costs, and ongoing supply chain issues. Another rise in interest rates next week will only add to more money leaving producers accounts, as the ability to repay debt levels heightens budgetary pressures. The global inflation surge and risk of recessions through major markets are a concern, but even these factors seem to have a different “cause and effect” than previous iterations. An Australian dollar trading below 70USc will help to maintain price competitiveness.

An easier factor impacting the cattle market is the lack of sunshine and warmth - particularly across the southern states. This will soon be addressed, as August marks the final month of winter which will fondly farewell the dull and damp season. Extensive feedback from producers, especially from western regions, is that once some warmth and growth is experienced, demand for suitable young cattle will increase considerably. Regions reporting that 2022 is wetter than previous years, with a disrupted cropping schedule, are expected to see cattle flowing back into paddocks in early spring, with producers re-evaluating marketing options in late summer and early autumn 2023. Overall, cattle are expected to be favored over sheep and lambs (even though both have fallen in price) for this endeavor, given the comparatively lower management requirements.

The fact that young cattle are now over 25% cheaper than only a few months ago may even accentuate the buying focus. However, as has been the case in previous years, it is one thing to want them…it is another to secure them. It is a clear possibility that the demand and supply imbalance of the past two years could easily be replicated in the final months of 2022. That is, those that have young cattle will hold them to utilize their own feed supplies, while those that don’t, are forced to compete for what is still, a smaller than average turnoff rate.