November 9, 2007

EYCI recovering from recent lows

The Eastern Young Cattle Indicator (EYCI) is now recovering from its October lows following widespread rains and the return of mild spring weather, reports Meat and Livestock Australia.

The EYCI began its October trading 33.75 cents below October 2006, at 294 cents/per kilogramme hundredweight (cwt) before steadily declining to bottom out at 272.5 cents/kg cwt - the lowest level since late December 2006. The main factors influencing the drop in prices were the deteriorating seasonal conditions as dry conditions persisted, rising grain prices which have hampered feeder activity and the high A$ which has squeezed processor margins.

The EYCI saw an improvement toward the end-October, finishing at 285.25 cents/kg cwt, and have continued this improvement to reach 295.50 cents/kg cwt this Thursday (November 8). This improvement can be fully attributed to the rain which has tightened numbers and sparked restocker interest. However, the continuing high grain prices, rising A$ and difficult trading conditions in Japan and the US may inhibit further gains in prices.

The indicator is likely to follow a similar trend last year, which could lead to last year's secondary low in December, unless the current wet and mild conditions persist.

In October, the EYCI averaged 282.13 cents/kg cwt, 7.85 cents below the October 2006 average and 18 cents below the December 2006 average (300.14 cents/kg). The number of cattle included in the EYCI during October was 3 percent below October 2006 numbers, at 55,982 head, indicating that the year-on-year price fall was due to demand factors. Despite the current seasonal conditions, some markets saw an improvement in quality, but still remained fairly mixed throughout the month.

Lot feeders and restockers were the most reactive to the deteriorating conditions and quality. During October, feeder interest was hampered by the significantly higher grain prices and the continuing appreciation of the A$, with demand remaining weak - feedlots only accounted for 26 percent of cattle purchased (14,792), compared to 37 percent in 2006 (21,071). Restockers accounted for 17 percent of cattle purchased (9,323 head) - a decline of 5 percentage points on October 2006.

Hence, processors accounted for the majority of cattle purchased during the month at 56 percent (31,602 head).

Feeder cattle included in the EYCI were typically purchased at a slight discount to the EYCI, averaging 4.86 cents below the EYCI, at 277.27 cents/kg cwt. Notably, during the same period in 2006 feeder cattle purchases on average were at the same level as the EYCI.

The average price paid by restockers for EYCI cattle in October was down 2.65¢ on the same period last year, at 285.84 cents/kg cwt. However, this was 3.71 cents above the EYCI during October, compared with last year's 1.49 cents discount, due to larger impact of the slump in feedlot demand on the Indicator.

For October the average price paid for slaughter cattle was similar to the average EYCI (only 0.50 cents below at 282.63 cents/kg cwt).