By Angus Brown | Source: MLA, Auctionsplus.
The Eastern Young Cattle Indicator (EYCI) is on the rise, and with it prices paid for store cattle. Around a month ago we took a look at how cheap store cattle were in the spring. Prices for restockers have risen with the rain, so we take a look at the new dynamic, and whether there is still a dollar or five hundred to be made.
It seems pretty cheap now, but a month ago we were looking at light steer prices at around 260¢/kg lwt. For a 250kg steer this came in at $650 per head. Even with weak feeder prices down the track there was a good margin to be made in backgrounding steers or heifers.
Fast forward a month and some rain has fallen in NSW and Southern Queensland, and store cattle prices are on the rise. Figure 1 shows the rally in the price of cattle bought by restockers in EYCI saleyards. Restocker Prices are up around 12% in the last month to sit at 292¢/kg lwt. On Auctionsplus there were only a few lighter store cattle sold last week, with prices in the 260-300¢ range. Heavier cattle are still commanding a premium for entry into feedlots.
If we plug the new weaner steer prices into a trading table (figure 2), and make a slight adjustment to sell prices we can see that there is still good money in growing out steers. The proviso is that there is grass available to do this, if trying to do it on grain and hay the equation would be a lot tighter.
The expected gross margin, which comes with a feeder price of 290¢/kg lwt for a 400kg steer, compared favorably with historical values. Figure 3 shows estimated average gross margins on a similar trade of weaner cattle bought in the summer and sold the following winter/spring.
The $410per head gross margin is as good as it gets when we don’t have a strong rising market, like the one from 2014 to 2016. Margins still need to be good however, as grass is not plentiful yet, and supplementary feed is very expensive.
Key points
* Recent rainfall has seen restocker demand improve and store cattle prices rise.
* Feeder and finished cattle remain strong, resulting in relatively strong trading margins.
* Until abundant grass supplies make feed cheaper, trading margins will remain very strong.
What does this mean?
Those who bought cattle back in September are sitting pretty at the moment, with prices having gained ground, allowing a profit, albeit a relatively small one, if cattle were to be sold now. If grass is available however, there is still good money to be made on growing out light cattle.
We expect strong projected margins to remain in place until there is a widespread break in the drought, and subsequent abundant feed. Supplementary feed is still expensive, and it’s going to be costly to put weight on cattle outside of grass systems, and as such the margins for grass backgrounders are going to remain strong. Just not quite as strong as they were a month ago.
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