As 2023 draws to a close, the cattle market looks to be adding a final twist to one of the more interesting years on record.
Widespread recent rain in the eastern states have delivered a much-appreciated lift in prices from a low of 349c/kg cwt recorded for the EYCI on the 18 October 2023 — after a 66% fall in 12 months. But longer term, the trend tied to an El Niño is still on producer’s minds.
With price falls as steep as those seen this year, it can be tough to make decisions. Producers have had to search to find value in the market, and with higher interest rates and input costs, returning a profit at the end of 2023 has become much more difficult.
Analysis of AuctionsPlus data indicates some opportunities for producers in a falling and changing market.
Deciding at what weight to sell is one of the more challenging conundrums, but typically, selling a lighter article will return a higher cents per kilogram price than a heavier counterpart. Weaner weight cattle tend to return a much higher cents per kilo price than if they were sold as feeders. This is because there tends to be more demand for weaner (lighter) cattle, as weight gain opportunities decline as stock matures.
Occasionally, feeder weight cattle (350-450kg range) trade at a premium over weaner weight cattle (250-350kg), presenting opportunities for those who have the ability to grow their steers to these weight targets.
A positive feeder steer premium was last fully observed in 2018 -2019, when the national herd was at record lows and three years of drought had forced many producers to sell due to feed and water limitations. This resulted in a supply deficit of feeder weight cattle coming onto the market. Any producer that could supply feeders were returning up to 25c/kg over weaner weight cattle. That window lasted from the back end of 2018 and right through to 2019.
We have recently seen a return towards a feeder premium for steers. Feeder steers showed a slight premium in the months of August, September and October before reversing in November. A potential reason for the reversal may be that market confidence – as the EYCI has rebounded from its low — has improved resulting in increased demand for all categories, shrinking the premium.
The recent rains have complicated the picture but if the long term weather forecast holds true the feeder premium looks likely to persist.
The figure above shows how the feeder steer premium has loosely followed the Indian Ocean Dipole since 2017. The IOD is a powerful indicator of weather conditions in Australia where a positive IOD phase is associated with lower rainfall in the central and south Australia. Conversely, a negative IOD is associated with increased rainfall. The relationship suggests the feeder premium occurs during periods where feed on the ground isn’t as plentiful.
The weather outlook is looking drier. In September, the BOM declared that El Niño and a positive IOD phase were underway. These climate forces predict lower than average rainfall for two-thirds of Australia. Warm and dry conditions are expected in eastern Australia until Autumn.
If these conditions materialise, the feeder premium might both increase and remain for some time. Producers with feed available feed could potentially make more money choosing to sell their stock as feeders instead of weaners. However, the premium would need to be high enough to offset the added cost of feeding. This was explored in our recent article Knowing when to hold ’em and when to fold ’em 2.0.