What will strong cattle supply mean for prices in the coming months?

Year-to-date cattle supply from MLA’s National Livestock Reporting Service (NLRS) reported saleyards indicates that cattle supply is tracking well ahead of the five and 10-year weekly averages compared to historical seasonal performance.

In September, national saleyard supply was 22% higher - about 50,000 head - than the 10-year September average. Figure 1 below demonstrates the solid cattle supply moving through saleyards in 2024.

Figure 1. MLA's NLRS Weekly National Saleyard Yardings, 2024 versus 10-year and five-year averages.

In addition to strong saleyard numbers, feedlot inductions (placements) have been some of the highest on record, and slaughter volumes have returned to near 2019 levels. This clearly highlights the robust supply 2024 has seen year-to-date.

It's important to remember that over the past decade, the beef industry has significantly increased its “capacity.” This includes more feedlot space, larger and more efficient processing facilities, and better land utilisation, such as additional watering points and improved infrastructure, which have increased stocking rates and carrying capacity.

Furthermore, while supply levels are historically high, we are not facing a widespread drought like we did from 2017 to 2019. Although the southern states have endured some of their more challenging seasonal conditions in recent years, the major cattle-producing regions of the country are experiencing one of their best seasons in the past decade.

"Contrary to popular belief, the herd is not undergoing liquidation in 2024. Any declines in the southern herd will likely be offset by the northern herd’s growth heading into 2025."

A lack of producer demand to play a key role in a softer market

So, the question must be asked: what will this stronger supply mean as we move toward the end of 2024 and into early 2025?

The grey line in Figure 1 suggests that we should expect cattle supply through the saleyards to increase in October and November, with good stock numbers available as we head into 2025.

In terms of prices, the market will remain under pressure due to this higher supply and weaker demand, particularly from the producer side. This will limit any significant upside in the market over the next few months.

Producers' cautiousness, largely driven by the 2023 market crash, along with rising business costs and higher repayments, is curbing their willingness to engage in the market.

Producers are crucial in driving market prices, and without their influence or demand for cattle, there is little capacity to push the market upward.

Swaps update

The StoneX Australian Cattle Swap monthly forward bids and offers indicate flat to softer market prices extending through to May 2025. The key drivers of this market shift are the increased supply from northern musters and the movement of southern cattle.

The most interest and liquidity in forward swaps are seen from January to March 2025. Bid/offer spreads across these months indicate the level of market interest in these months' forwards.

Table 1. StoneX Cattle Swap forward prices - dated 08.10.2024.

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.

StoneX Disclaimer The StoneX Group Inc. group of companies provides financial services worldwide through its subsidiaries, including physical commodities, securities, exchange-traded and over-the-counter derivatives, risk management, global payments and foreign exchange products in accordance with applicable law in the jurisdictions where services are provided. References to over-the-counter (“OTC”) products or swaps are made on behalf of StoneX Markets LLC (“SXM”), a member of the National Futures Association (“NFA”) and provisionally registered with the U.S. Commodity Futures Trading Commission (“CFTC”) as a swap dealer. SXM’s products are designed only for individuals or firms who qualify under CFTC rules as an ‘Eligible Contract Participant’ (“ECP”) and who have been accepted as customers of SXM. StoneX Financial Inc. (“SFI”) is a member of FINRA/NFA/SIPC and registered with the MSRB. SFI is registered with the U.S. Securities and Exchange Commission (“SEC”) as a Broker-Dealer and with the CFTC as a Futures Commission Merchant and Commodity Trading Adviser. References to securities trading are made on behalf of the BD Division of SFI and are intended only for an audience of institutional clients as defined by FINRA Rule 4512(c). References to exchange-traded futures and options are made on behalf of the FCM Division of SFI . StoneX is a trading name of StoneX Financial Ltd (“SFL”). SFL is registered in England and Wales, Company No. 5616586. SFL is authorized and regulated by the Financial Conduct Authority [FRN 446717] to provide to professional and eligible customers including: arrangement, execution and, where required, clearing derivative transactions in exchange traded futures and options. SFL is also authorised to engage in the arrangement and execution of transactions in certain OTC products, certain securities trading, precious metals trading and payment services to eligible customers. SFL is authorised & regulated by the Financial Conduct Authority under the Payment Services Regulations 2017 for the provision of payment services. SFL is a category 1 ring-dealing member of the London Metal Exchange. In addition SFL also engages in other physically delivered commodities business and other general business activities which are unregulated and not required to be authorised by the Financial Conduct Authority. StoneX Group Inc. acts as agent for SFL in New York with respect to its payments services business. StoneX APAC Pte. Ltd. acts as agent for SFL in Singapore with respect to its payments services business. StoneX Financial Pty Ltd (ACN 141 774 727) holds an Australian Financial Service License (AFSL: 345646) for Dealing in Securities, Exchange-Traded Derivatives Contracts, OTC Derivatives Contracts and Foreign Exchange Contracts, and is regulated by the Australian Securities and Investments Commission. ‘StoneX’ is the trade name used by StoneX Group Inc. and all its associated entities and subsidiaries. Trading swaps and over-the-counter derivatives, exchange-traded derivatives and options and securities involves substantial risk and is not suitable for all investors. Past performance of any futures or option is not indicative of future success. Indicators are not a trading system and are not published as a specific trade recommendation. The information herein is not a recommendation to trade nor investment research or an offer to buy or sell any derivative or security. It does not take into account your particular investment objectives, financial situation or needs and does not create a binding obligation on any of the StoneX group of companies to enter into any transaction with you. You are advised to perform an independent investigation of any transaction to determine whether any transaction is suitable for you. No part of this material may be copied, photocopied or duplicated in any form by any means or redistributed without the prior written consent of StoneX Group Inc.