Australian cattle prices are continuing to soar after the Eastern Young Cattle Indicator pushed into record territory overnight, breaking through the $10 mark to sit at a whopping 1003.44¢/kg.
The EYCI jumped 7¢/kg (carcass weight) from Thursday, with the indicator now sitting at 252¢/kg — or 24 per cent — higher than this time last year.
Its WA counterpart, the WYCI, remained stable overnight at 980.59¢/kg.
LIVEstock Pricing managing director Rob Kelly said the surge was being driven by the simultaneous effects of increased demand and reduced supply.
“We’re obviously getting a lot of people trying to rebuild stock numbers on the east coast from the drought,” Mr Kelly said.
“But then also, from the Queensland flood, there would be a lot of guys there holding onto stock that they might have otherwise been able to get rid of.
“So you’ve got re-stockers buying at the same time as your feedlotters and processors, so it’s just driving demand up and then supplies are low as well, so that’s your price impact.”
Mr Kelly predicted it would take at least 18 months to rectify the supply and demand imbalance, though he did not expect the indicator to stay where it currently sits.
“On the demand side, the risk is that you see more processors shutting down either for extended periods or full time, or just going to reduced shifts so that they don’t have to keep trying to operate on five days when they can only get three days’ worth of stock,” he said.
“That’s sort of where they’ve been probably for the last 12 months, but now, with the season being as good as it is on the east coast, there’s a lot of people pretty keen on rebuilding their numbers, so for WA, a lot of cattle will go east – same as sheep.
“In WA our processors are all still running but we’re also getting that east coast demand coming in as well.
“Getting cattle — or any livestock — out of WA and into the other states doesn’t seem to be an issue, but if we try to bring them in there’s a lot of issues. There are restrictions on livestock movements that make that hard.”
Mr Kelly said the record prices were already resulting in higher costs for consumers.
And with processors continuing to lose money — particularly in the eastern states — despite the rising price of meat, he admitted current prices were not sustainable.
“Largely it’s about volume, so if they (processors) have got a lot of stock going through their system they make a small amount on each one, but if they don’t have a lot of volume going through, they’ve got a high fixed cost,” Mr Kelly said.
“I don’t think it’s sustainable unless we see some sort of massive increase in the price that processors are receiving for it.
“Whilst it’s great for farmers, you walk a fine line, and that’s why we’re seeing processors shut down.”
Mr Kelly said small processors would be the first to go while larger, more diverse players were more likely to weather the storm, which could lead to a less competitive market.
It would likely be the same story elsewhere in the supply chain.
“It’s the same thing for exporters and feedlots; if the numbers aren’t adding up then there’s no point in them continuing to lose money on that investment,” he said.
The risk is that you see more processors shutting down either for extended periods or full time, or just going to reduced shifts so that they don’t have to keep trying to operate on five days when they can only get three days’ worth of stock.
Meat and Livestock Australia market information manager Stephen Bignell said the 7¢ overnight jump in the EYCI was not significant in itself, though cracking the 1000¢/kg mark certainly was.
“Throughout the year, people didn’t think it would go above 800¢/kg; they didn’t think it would go above 900¢/kg, then 950¢/kg and 1000¢/kg,” Mr Bignell said.
Though the WYCI did not fall overnight, Mr Bignell said it had dropped 60¢/kg — or six per cent — since hitting a high of 1042¢/kg on June 7.
“The WYCI was trading at a premium over the EYCI, but it’s eased a little bit,” Mr Bignell said.
“Currently we’ve got 429 cattle going though it, Mount Barker making up 60.37 per cent, and the majority of the cattle being traded in the WYCI are young vealer steers.
“The average price for a vealer steer in WA is 1096—/kg carcass weight.
“The dynamics are a little bit different; in the eastern states, yearling steers is where the majority of the throughput is.
“In WA, interestingly, feedlots are taking 83 per cent of the WYCI cattle, processors 10 per cent, and re-stockers six per cent, whereas in the EYCI, re-stockers are taking 50 per cent.”