It’s that time of year when the cattle market focus turns to the south of the country for the annual weaner sales. Producers in Victoria have had an ordinary season to say the least, and the costs of production for weaners were no doubt the highest on record. The market doesn’t care about costs of production, but in terms of value, weaner producers are doing better than last year.
There are number of ways to measure value in cattle markets. Absolute price is one, but it’s highly subjective. Comparing to the recent past is the most common way value is measured. We like to add another couple. In the case of weaner prices, we look at them relative to the Eastern Young Cattle Indicator (EYCI).
Looking at the weaner spread to the EYCI, and comparing to historical levels tells us how the supply and demand situation compares to history, and if there is opportunity in looking for a correction. We also run a basic budget over weaner prices to see what sort of margin might be made out of buying weaners under a number of scenarios.
Figure 1 gives us a snapshot of how weaner prices this year compare to historical levels, and the EYCI. For weaners prices we used 425¢/kg lwt, which is around the rate for 300kg Angus weaner steers at Hamilton this week. The price series runs back to 2002, and we can see that this year’s weaners are priced 37% stronger than last year, and at the fourth highest level on record. In absolute terms, weaner prices are at the more expensive end of the scale.
The EYCI has opened the year stronger, no doubt helping push weaner prices up. The weaner premium come in at 40¢/kg lwt, or 10.5%. The premium is higher this year, up from 7% last year, but still at the second lowest level since 2017. Compared to the EYCI, which we use as a measure of the broader cattle market, weaners this year are relatively cheap. No doubt a lack of feed and water in the areas where cattle are being sold is contributing to this "cheapness".
Another factor keeping a lid on weaner prices is expected sale price. Figure 2 shows a basic trading budget. We’ve left costs out, as no matter what we put in, we’ll get an email saying it’s wrong. Best to create your own trade budget. The gross margin on buying weaners at $1275 and selling as export feeders at 360¢/kg lwt is not particularly attractive.
Under a scenario where the market falls, costs would outweigh the margin, and most buyers would be looking for 400¢ to make a decent profit out of the trade.
The market has set the price, and given the circumstances sellers are getting good value, and buyers are punting on a good price out the other end.