Increased Competition and Restrained Supplies Reignite Cattle Market

In the first two weeks of August, weekly commercial cattle prices have shown signs that the winter chill has thawed, as buyers targeted the lower prices as an opportunity to step in and buy – pushing clearance rates up to 94% with average final sale values reaching $213/head over reserve (Figure 1).

The uncertainty and drop in confidence surrounding the risk of FMD, as well as cold and wet conditions through winter very quickly built a sense of cautiousness in the commercial cattle market. Average prices, clearance rates and average value over reserve decreased from the start of June – at least until the start of August.

Figure 1 also shows that the average value over reserve consistently hovered around $100/head through June and July, as vendors and buyers rode the market lower. However, this changed significantly in the first week of August, with rekindled competition from buyers for a restrained supply, pushing final sale prices almost $200/head above the reserves set by vendors. A combination of low prices offering a comparatively great buying opportunity, along with signs of spring just around the corner, tightened supplies.

Value over reserve is a measure of the difference between buyer’s willingness to pay (sale price) and vendors expectations (reserve price). Figure 2 shows that value over reserve peaked in November 2021, while average sale prices peaked in January 2022 - due to vendors adjusting their reserves and expectations higher. This slight lag in vendor reserves suggests that value over reserve can act as a leading indicator for price movements, as it provides additional context behind the demand and supply dynamics influencing the market.

The rebound in the market has been further supported by vendors hesitancy to sell, with plenty of feed on-farm, vendors can, and have, chosen to hold onto stock (Figure 3). The lower supply of cattle has been the case for several weeks, suggesting that the last fortnights shift is predominantly competition driven, as confidence starts to build into spring.