By Matt Dalgleish | Source: MLA, ABS, Mecardo.
A handful of Mecardo subscribers have queried the likely behaviour of prices for breeding stock once the season returns to a more favourable outlook and the herd rebuild gets underway again. In this piece, we looked at EYCI eligible heifers in the northern saleyards and the behaviour of restockers in relation to these cattle last time the drought broke.
Prior to the herd liquidation phase seen in the 2013/15 period the most recent period of destocking was during the 2006/10 era when the Australian cattle herd declined 6.5% from 28.4 to 26.5 million head.
A return to a much wetter climate throughout 2010/11 saw breeding stock retained over the 2011 season. The female slaughter ratio trended well below the normal seasonal range for most of the 2011 season, averaging an annual figure of just 36.8% (Figure 1).
A breakdown of the spread price behaviour of restocker buyers at northern saleyards (including Dubbo and EYCI eligible saleyards to the north of Dubbo) demonstrates that during the 2011 season the appetite to pay up for EYCI eligible heifers persisted for much of the season.
Indeed, as Figure 2 identifies, from March 2011 onwards the northern restockers paid above the seasonal ten-year average and, at times, extended the premium spread they were paying for heifers beyond the upper boundary that would be considered normal for that time in the season. This was most evident during late September of 2011 when the northern restocker spread peaked just shy of a 5% premium to the EYCI.
In contrast, the behaviour of northern restockers during the 2018 season highlights the impact of the very dry autumn/winter period. Interestingly, improved rainfall conditions across NSW in recent months has seen the spread narrow from a 15% discount in early October to a 4% discount in early November, further demonstrating how responsive restockers are to rainfall.
Analysis of the impact that the behaviour of northern restockers on the heifer price during times of improved climatic conditions can be demonstrated by the pattern of percentage price gain/loss throughout the season (Figure 3).
Key points
* The last time we saw a significant increase in the Australian herd was during the 2011 season, on the back of much wetter than normal seasonal conditions.
* During this time breeding stock was in high demand from restockers, particularly in northern markets, with heifers achieving above average price spreads to the EYCI for much of the year.
* Analysis of recent wet year price behaviour suggests that it is not uncommon to see young heifer prices rise 30-40% over the season.
What does this mean?
Overlaid in Figure 3 is the 2018 seasonal pattern and the average pattern during wetter than normal years. During times when the herd rebuild is underway with favourable rainfall patterns encouraging restocker activity, it is not uncommon to see the price for EYCI eligible heifers in northern markets to gain 30-40% during the season.
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