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As the EYCI advances are restockers getting grass fever?

Posted by Robert Herrmann on 5 July 2016
Robert Herrmann
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The EYCI has hit an all-time high of 660.50 cents per kg cwt; this brings to the fore the question of where is the top of the cattle market? Has the market peaked? The old adage of “it takes high prices to fix high prices” starts to resonate.

We have also been around long enough to see frenzied bidding when conditions are good and grass is abundant – grass fever!cow-eating.jpg

Over the past couple of years, it has been “finished” or fattened cattle that have driven the EYCI. With the dry conditions across the major cattle producing areas plenty of supply was offered as growers tried to manage dwindling feed supply. At the same time, restocking demand was subdued for the same reasons.

So we had a net reduction in stock in line with seasonal conditions – all perfectly normal.

The recent good rain across the country has reversed this situation. While we are not suggesting it “rains grass”, it certainly adds confidence – so the willing sellers dry up and the enthusiastic buyers emerge. Either buyers who are re-stocking, looking to increase numbers or opportunists jumping on the positive market sentiment band-wagon.

It makes great news when sellers and agents report “it’s as good as I have ever seen it!”, but it is unlikely that anyone wants to prick the balloon and suggest this is as good as it gets!

drops-of-dew-in-the-morning-sun-1373998_960_720.jpgThere are tell-tale pointers we can use to try and answer the question. The retail or export price needs to return at least break-even on the cattle price for starters. When the 90CL price was rollicking ahead of the EYCI through 2014-15, we were able to confidently predict the capacity for the cattle market to go even higher.

 

Similarly, high US cattle prices (including future prices) caused the strong demand for Aussie beef which also gave us confidence.

The market has now changed in some critical areas including the meat sale price as well as the US cattle price. These changes are not conducive to further saleyard price increases. It may well be that “grass fever” maintains the momentum for a bit longer; however, if the underlying fundamentals are not right markets can only stay out of sync for so long.

Markets are continually finding their fair value; this causes markets to move up and down as new information comes to hand. There is always a balancing or weighting of the available information, with the challenge to identify what’s important and what will make the market move and in which direction.

Currently many of the key market drivers are suggesting that the cattle market is running out of steam – this says its either a time to sell or the time to delay purchasing decisions.
Click here to read our most recent EYCI analysis.

 

Topics: Australian cattle industry, beef market

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