Record cattle prices are making it hard for producers trying to restock and may put the brakes on the national herd’s drought recovery.
- The EYCI has surpassed 900 cents for the first time
- Demand has spiked after rain in drought-affected areas last month
- High prices are making it hard for cattle producers trying to restock
The Eastern Young Cattle Indicator (EYCI) has passed the 900 cents a kilogram mark for the first time in history.
“People need to rebuild the herd and they’re scrambling to,” NAB agribusiness economist Phin Ziebell said.
“For producers who are looking to rebuild, you’ve sold low, you’re buying high and if you ask somebody what cattle prices will be in a few years, no-one really knows.”
Rain drives price rise
The EYCI closed yesterday at 901.75 cents, almost 200 cents up on the same time last year.
Rain in drought-affected parts of Queensland and NSW are the main driver, according to Mr Ziebell.
Ray Cranney is a grazier near Goondiwindi in southern Queensland and recent rains have changed the outlook on his farm, which has struggled through years of drought.
Dusty and dry paddocks are now flush with green grass, and Mr Cranney only has half of the cattle his property could sustain through winter.
Mr Cranney, like many other graziers, was looking to rebuild, but very high prices were slowing him down.
“It is hard, and in the local area, you really can’t pick up too much,” Mr Cranney said.
“You have to look further north and south, and we’re willing to do that.
Slow herd recovery
According to ABARES, the National herd was sitting at below 23 million head, and forecasts for the speed of the rebuild differed.
“Meat and Livestock Australia’s [MLA] estimates point to a more rapid rebuild in the herd, whereas ABARES thinks it won’t do much,” Mr Ziebell said.
He said a rapid rebuild scenario would require far fewer animals being slaughtered for processing and a lot fewer live exported overseas.
“Can we rebuild the herd above 26 million by 2022–23, which is sort of where MLA is looking?” Mr Ziebell asked.
“We can but it’s a big task ahead, and we’ll be needing good seasonal conditions for the next few years to allow that to happen.”
MLA said 2021 was already on track to see a historically low slaughter record.
The National Livestock Reporting Service has reported the lowest March quarter slaughter in more than 20 years, at 1,206,404 head.
Prices put pressure on profits
With prices so high, beef processors were facing record losses of more than $300 per head of cattle processed for the past three months, according to market research from Thomas Elder Markets.
It was also making margins tight for feedlotters.
Smithfield Cattle Company has just finished an 18-month, multi-million-dollar expansion of the Sapphire Feedlot near Goondiwindi.
The feedlot now holds 20,000 head of cattle being fed for direct sale to meat processors.
Smithfield Cattle Company chief operating officer Jason Shearer-Smith said the company tried to keep its feedlots at capacity for operational efficiency, which has been difficult in the current market.
“Our margins are pretty tight at the moment, but we’re going OK.”
The good news, if you buy cattle at least, is that prices are expected to fall in the second half of this year as supply areas dry out and restockers lose their appetite for growth.
“My sense is we are going to see a fall in ECYI, particularly in the second half of 2021–22,” Mr Ziebell said.
“The question I have around price and herd rebuild is: if the grass isn’t there and the feed isn’t there in nine months, how can you support prices at this level?
“The answer is that you can’t.”
Mr Ziebell speculated that the ECYI may fall to as low as 850 cents a kilo later this year and 600 cents in early 2022.