Be wary of price difference for finished versus restocker cattle

Cattle prices have had a big price rally in the past week, but buyers are warned to keep an eye on the price difference between finished and store stock.

Farmers make farmers money and farmers cost farmers money.

Sounds like a riddle but it is a fairly blunt assessment of what has happened across the livestock sector this year. The collapse of producer sentiment amid all the El Nino weather talk caused cattle and sheep prices to plummet, and now rain has put some vigour back into the market again.

For all the complaining about supermarkets and meat exporters, in reality a lot of the time they just ride the waves between the mood and actions of farmers – having to pay more for stock when pushed for numbers and supply and following prices down when the support of livestock producers leaves gaps in the market.

The price rally for younger cattle in the past few weeks has been spectacular in some ways, noting it was coming off a very low base. There haven’t been many times in the past decade when store weaner prices have gained up to 100c/kg in the space of a fortnight.

Young cattle prices have rallied 100c/kg in a fortnight.

Store lamb prices have also gained momentum and the good lines are now costing more than 400c/kg carcass weight equivalent as values push closer to finished slaughter lamb rates.

The more positive trend in the livestock sector has been widely embraced and needed to happen as prices had dropped too low to be viable against today’s high input costs for things like fuel, fertiliser, seed, land costs and chemicals.

However, a note of caution. Keep an eye on how the finished market is performing so the pricing structure for stores versus finished cattle and lambs stays reasonably connected.

As the graphic on this page shows, the national price for young steers sold at prime markets has quickly stepped up to be 70c/kg liveweight ahead of the ruling national saleyard average for heavy grown steers.

The price points reported by the National Livestock Reporting Service on Monday were 295c/kg liveweight for store steers versus 228c/kg for prime bullocks.

Go back just a month ago and prices between the two categories were virtually aligned at about 210c/kg. Aside from times of drought, store stock usually sell at higher rates to the finished article, but the greater the premiums paid the more weight gain which is needed to counteract the difference.

The industry certainly doesn’t need a repeat of the extreme price gaps which were recorded over parts of 2020 to 2022 when store buyers paid up to 300c/kg more for store steers compared to the trend line for bullocks.

In fact, the graphic below should come with a warning of danger stamped across the big price difference that existed at the peak of the herd rebuild in 2022 – and then people could cut it out and put it on the fridge as a constant reminder not to get too carried away.

Price difference between finished and store cattle.

The industry is far from that extreme point today, and most people believe the market still has a reasonable upside.

At last week’s annual general meeting of Meat and Livestock Australia in Bendigo some figures were put up showing the 10-year price averages for cattle and how it looks against today’s saleyard figures.

This was the picture for the main cattle categories:

Processing cows 188c/kg liveweight, 19 per cent lower than the 10-year average of 226c/kg;

Feeder steers 241c/kg liveweight, 24 per cent lower than the decade average of 319c/kg;

Heavy steers 222c/kg liveweight, 24 per cent lower than 10-year average of 294c/kg; and

Restocking steers 295c/kg, 16 per cent lower than the average of 339c/kg.

Much of the potential upside for beef prices is being linked into the eventual herd rebuild in the United States, which in theory means less beef from the US on the world stage (particularly into Asia) coupled with more demand from the US itself for imported product.

The timing and strength of the US turnaround is what is open to debate.

Currently US beef prices have softened with reports weaker consumer and export demand has pulled back the market.

The latest Steiner Consulting report said prices have continued to ease and data suggests more meat is going into frozen storage as retail buying remains dull.

“Demand uncertainty, higher supply on feed and a very light trading volume all combined to push cattle values lower for the week,” Steiner reported.

“Retail items, which helped underpin the market in late summer, have been trending lower and futures are currently pricing a much lower demand environment (for beef) than they did three months ago.

“Meat into cold inventories in the past two months has increased at a faster pace than normal. This has happened even as beef production (in the US) has remained well below year ago levels, suggesting a slowdown in domestic and export demand.”