By Angus Brown | Source: MLA.
This article is bought to you by Bruce Robertson Transport.
Earlier in the week, Mecardo had a look at rampant female slaughter rates. Not only have a large number of females been slaughtered so far this year, but for much of last year, rates were higher than normal as well. Heifers and cows for breeding are going to be in strong demand when the season breaks. Today we look for historical precedents as to what this might do to prices.
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If the herd is to rebuild from the twenty year lows we are seeing this year, there will have to be plenty of heifers retained. We have seen a few notable herd rebuilds in the last twenty years.
In 2012, the Female Slaughter Ratio (FSR), which was explained earlier in the week, fell to a low of 40%. In 2006 the FSR moved to 44% while it briefly hit 45% in 2017. The critical level for the rebuilding of the herd has historically been 47%.
Figure 1 shows that as expected, steer and heifer prices move together much of the time. The Eastern Young Cattle Indicator (EYCI) eligible steers and heifers bought by restockers in the north, have been priced well when the herd is in rebuild. Record young cattle prices were hit in 2016 when the FSR was at 43%, and restocker demand was rampant.
Generally the EYCI holds around a 5% premium to restocker heifers, but when the herd is being rebuilt, heifers are priced at similar levels to the EYCI. Figure 2 shows that in both 2016 and 2012 heifers were priced at levels close to the EYCI when female slaughter was weak.
In terms of trading, it looks like the horse has bolted. In January and February, heifers were a buying opportunity, trading at a 10-15% discount for much of that period. For one week, the heifer discount to steers got up to 25%. In recent weeks the heifer discount has shrunk with the improving season, and wiped out some of the potential upside, relative to the market in general.
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Key points
* An improved season will see strong female cattle slaughter recede.
* Heifers have been cheap early in the year, but have made up ground in April.
* Trading opportunities for heifers remain, but steer look less risky if rain doesn’t keep coming.
What does this mean?
The widespread rainfall forecast for this week will no doubt see the young cattle market rally. But it seems there might not be much more benefit in buying heifers than buying steers in the current market.
While the market is still below 550-600¢, both steers and heifers are likely to be good buying if rainfall arrives and cattle producers move into rebuild mode. There will be very good money in growing out and joining heifers for sale later in the year if the season does turn around, but the less risky option would be steers which might be easier to quit if the rain doesn’t keep coming.
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