This article is bought to you by Mulcahy & Co Agri Solutions and SST GPS.
By Matt Dalgleish | Source: MLA, USDA, CME, Steiner, OECD, FAO, Mecardo
Key points
· Based on a relatively normal climate for the 2020 season the EYCI forecast model predicts an annual average of 596¢/kg cwt and a seasonal range of 465¢ to 730¢.
· A wetter 2020 would see the EYCI average 640¢ over the year, with a potential peak as high as 780¢.
· A continuation of the dry conditions into 2020 would see the EYCI average 553¢ with a trough as low as 430¢.
Recent changes to the Meat and Livestock Australia (MLA) cattle industry projections, along with a softer A$ and updated USDA cattle supply metrics have prompted a revision to the Mecardo Eastern Young Cattle Indicator (EYCI) forecast tool. In this analysis, we provide annual average forecasts to 2022 based on a wet, dry and average climate.
The Mecardo EYCI forecast tool uses a variety of input variables to predict the annual average value of the EYCI each season. Inputs to the model include; an Australian dollar forecast, global cattle price projections, a supply ratio between the USA and Australia, global and domestic feed cost factors and a rainfall measure.
Ad - Mulcahy & Co Agri Solutions provides a wide range of Farm Financial Services, they make sure you get results from all your hard work - Ad
Ad - For all your Trimble GPS needs contact SST GPS, they'll get you going straight - Ad
Figure 1 demonstrates the predicted trend for the EYCI for the next three years based on a normal rainfall season for the 2020 to 2022 period. The model suggests an annual average EYCI of 596¢/kg cwt for 2020, declining to 534¢ in 2021 and 476¢ by 2022 as lower global cattle prices and an increasing supply ratio of Australian to US production act as a headwind.
However, if we adjust the model to reflect a wetter than average climate from 2020 through to 2022, we can see that the EYCI could peak higher than what we saw during the last herd rebuild phase during the 2016/17 season as restockers are encouraged back into the cattle market (Figure 2). Under this wetter scenario, the EYCI could average 640¢ in 2020, 600¢ in 2021 and 542¢ in 2022.
Alternatively, we can adjust the rainfall input to the model to demonstrate the impact of a continuation of the dry conditions remaining for the next three years (Figure 3). A drier than average 2020 to 2022 would result in an annual average EYCI of 553¢ in 2020, 490¢ in 2021 and 433¢/kg cwt in 2022.
What does this mean?
Considering the forecast model shows the annual average EYCI, it doesn't account for the usual seasonal peak and trough experienced by the cattle market each year. Analysis of the historic peaks and troughs each season shows the EYCI has varied through the season by about 22% above or below the annual average for 95% of the time since 1996.
Applying this historic seasonal variation measure to the 2020 EYCI forecast, assuming a relatively normal season next year, would put the potential range in the EYCI between 465¢ and 730¢. A wetter season could see it as high as 780¢ during the seasonal peak, while a drier season could see it as low as 430¢ during the seasonal trough.
Ad - For all your Trimble GPS needs contact SST GPS, they'll get you going straight - Ad
Share Ag News Via