Rain drives Spring confidence as restocker markets fire

As per Figure 1 below, widespread and very timely rains across the broader eastern states last week came at a time when Spring growing conditions are getting ever closer.

Figure 1. Week ending Friday, August 28 BOM Rainfall totals.

The timing of this rain is more influential than the actual amount itself and that’s particularly relevant for central and northern NSW which are now emerging on the other side from a challenging winter.

Why timing matters, is because of what it can do for producers’ collective confidence and because of that, how confidence can translate into improved demand and a lift in prices.

How we quantify confidence at a producer level in the short term can be a challenge, although it can be done.

I am of the view, that the Eastern Young Cattle Indicator (EYCI), whilst a very well recognised and widely referenced price indicator for the Australian beef industry, is really an index which shows producer confidence at the restocker level, it shouldn’t be used for anything else other than that, a confidence barometer.

Why it shouldn’t be used for anything more than a confidence barometer, is because you can’t sell or buy an “EYCI” – it’s a carcase weight index which next to no cattle are transacted in at the category level it references. This renders it a better communicator at an aggregate level of how producers “feel” than what it can ever tell you about prices.

The recent moves in the EYCI quantify that shift in confidence for producers following the rains many have received in the past 10 days. The same shift in confidence can be seen in July when dry conditions returned and the market sold off.

What’s important to understand here, is not the EYCI price but the adjustments in collective rates paid – communicated via the EYCI index which tells you how confidence has improved substantially in the past week driven by that rain.

Figure 2. Eastern Young Cattle Indicator confidence shifts (Source: NLRS)

What this means?

Ultimately, what I’m attempting to convey here, is that producer confidence has lifted sharply in the past 10 days driven by the recent late August weather event. Spring is now very close for a lot of people and that realisation has pushed demand for light cattle sharply higher.

This is applicable across all regions throughout the east which experience Spring like conditions, that is from Roma south into Victoria and South Australia.

What it means, is that grass production will bring heightened demand for cattle and any further rain events may drive confidence and demand higher again.

What to monitor is weather events through Spring and how that shapes or pushes producer confidence and or demand, one way or another. But current signals appear supportive of improved demand, I’ve covered this in a previous column on a Spring rebuild.

The Bottom Line

• The timing of widespread rains across the broader east has mattered more than the amount, as Spring nears.

• The EYCI should be considered a confidence barometer for the beef industry.

• The next moves to watch is weather events through Spring to see how that shapes producer demand moving forwards.

Ripley Atkinson's experience in the red meat industry and current role at StoneX developing price risk management tools for Australia’s sheep and cattle sectors ensures he delivers unique, whole of supply chain insights and analysis across key factors such as prices, supply, production and the drivers of the sheep and cattle cycles.

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