From boom to bust, cattle prices have been on a wild ride since the start of 2020, with ‘historical highs’ and ‘return to normal’ becoming common vernacular. But what has made it so abnormal and what might prices have looked like if it was ‘normal’ market conditions?
The dramatic change in seasonal conditions from 2019 to early 2020 led to an equally dramatic lift in prices. Looking back, this can be viewed as unusual pricing due to extraordinary circumstances that resulted in rampant restocking demand, exaggerating the natural cattle cycle.
Moving to the end of 2022, with the herd rebuilt and expanding towards the long-term average population, the restocking demand seen over this period has subsided and the cattle market may have returned to its natural cycle, albeit at reasonably high prices.
Figure 1 below is a visual representation of the phrase ‘returning to normal levels from historical highs’. The orange line represents what normal pricing may have looked like, while the blue line over the same period represents the historical highs. The EYCI increased 197.73 c/kg cwt from January to March 2020, then fell 201.08 c/kg between November 2022 and January 2023. Price changes of this magnitude are not typical for the cattle market and are the result of a combination of extraordinary factors. The rise was caused by the breaking of the drought, coupled with the lowest cow herd in 30 years and strong export demand. On the other side, the recent fall was caused by a surge in the turn-off of cattle, previously delayed by widespread flooding, with restricted processing capacity. Additionally, producers’ expectations of seasonal conditions were deteriorating and export demand was weak.
The AuctionsPlus Insights team has applied an adjustment of 200c/kg cwt to the EYCI price between February 2020 and November 2022 to account for these extraordinary circumstances. The resulting orange line is an indication of what the EYCI could have been under more ‘normal’ market conditions.
In the second half of 2022, the cattle market experienced significant volatility due to exotic disease concerns and widespread flooding impacting the flow of cattle through the supply chain. The impacts of both factors have greatly reduced so far in 2023, while consistently higher slaughter volumes have also provided some stability to the market in comparison to 2022. We are now at the transition point back to normal market conditions and reasonable prices.
It's easy to feel negatively about current cattle prices, given the 36% decline since this time last year. It’s important to remember the current indicator price of 724c/kg cwt, as of February 22, is in the 72nd percentile of prices for the past 10 years and is 9% higher than February 2020. It sits just below the top quartile of prices, which starts at 762c/kg cwt, and well above the ten-year average of 617c/kg cwt (Figure 2).
Keeping the historical context of prices front-of-mind when deciding to buy or sell is crucial to making the best possible decision on farm, and to also account for the negative bias associated with recent significant declines in prices.