Livestock prices: Sheep, cattle and lamb surge has the market pressured

It’s traditionally a time when prices lift, but big yarding numbers this winter could further burden stock prices.

There doesn’t appear to be any ‘silver bullet’ in the pipeline for producers debating options around the price collapse for cattle, sheep and, to a slightly lesser degree, lamb.

A build-up of livestock numbers versus processing capacity, the weather, farmer confidence and a weak economy have created a complicated environment for markets and there’s no magical solution.

The first issue of supply overwhelming buyer demand can be seen in the latest data.

In the first two weeks of this month, there have been 118,633 cattle counted at prime markets monitored by the National Livestock Reporting Service. In the same two weeks in May last year, 78,708 were offered. It marks a 50 per cent increase.

Buyers were watching on at the Leongatha store sale last week as confidence wanes. Picture Yuri Kouzmin

As the table on this page shows, the supply of cattle into saleyards has been gaining momentum this year and has been gathering pace since March.

In comparison, the cattle kill has lifted on year ago levels but not to the same extent. To look at the latest data for May, cattle slaughter is sitting at more than 170,000 for a 20 per cent rise on a year ago (but below the 50 per cent rise evident in cattle yardings). And these numbers don’t include the rise in cattle being pushed to processors direct.

The May-to-May comparison of saleyard to kill ratio is a simple snapshot of market dynamics, but it explains why prices have melted down as processors effectively get more cattle than they can handle.

The same scenario is playing out with sheep and lambs. The Weekly Times understands some meatworks are no longer quoting prices for lambs and sheep and are just taking bookings for ‘kill space’, with the price offer then quoted a few days out from delivery.

One buyer said it was something of a rare occurrence as they lost what he described as ‘currency’ with the physical market, ie, they were now booked ahead with more than two-weeks kill which meant they were still processing sheep forward purchased at 300-450c/kg carcass weight which now looked expensive on current rates and ran the risk of making them uncompetitive when selling meat.

The negative from this scenario was that it shows even processors are unsure of where the ‘bottom of the market is’ and are unwilling to commit to prices even at today’s low levels and on the verge of winter, which is traditionally a premium price period for stock.

Stock supply is being influenced by the weather and growing talk of an El Nino event. Evidence of producers starting to ‘batten down the hatches’ and get rid of high maintenance stock can be seen in the number of cows being sold.

The latest rolling price average for heavy cows being sold at saleyards had listings of 8926, more than double the supply of 3630 seen at markets a year ago.

The season is starting to close in across northern dryland areas, which may surprise producers in the southern parts of Victoria which have been getting fairly regular showers of rain.

Again, cow supply and price data tell the story. Victoria currently has the strongest average cow price of all the states at 252c/kg liveweight, according to the NLRS. NSW has a lower price of 220c/kg as it comes under the pressure of rising numbers – 4187 heavy cows in the latest indicator compared to just 1800 head the same time last year. Queensland has also been squeezed on rising supply and is at 211c/kg liveweight.

Another signal that the season and producer confidence is responsible for a big part of the livestock turmoil is evident in a break down of Angus steers sold on AuctionsPlus.

Light Angus steers in the 200-280kg weight bracket lost 23c/kg online last week to average 433c/kg liveweight, AuctionsPlus reported. In comparison, heavier Angus steers 330-400kg gained 3c/kg to average 439c/kg liveweight. The premium that young and light stock have been making is disappearing as restockers back out of the market.

For producers debating what to do as the market folds around them, holding in the short-term is a gamble on rain. A good widespread rain would help slow supply and put some confidence back into the industry

On a positive, the grinding beef market into the US (which underpins the generic trade of beef) is still OK. It has drifted down or sideways but has not shown any major correction to cause cow prices to decline the way they have in Australia.

The latest conversion has the 90CL price (90pc red meat 10pc fat blend used to make hamburgers) tracking at $A830c/kg shipped into the US. A cow price of 226c/kg liveweight converts into a carcass rate of around 443c/kg on a 51 per cent yield. It means there is a price ‘gap’ of more than 380c/kg between what processors are buying cows for to the price of the product landed in the US.

Historically that is at the high end of where the two price lines trend, meaning processors should be making healthy margins on cows and if supply eased they could certainly afford to pay more to keep their production going.

For lamb, in the short-term there are forward prices of 680c to 720c/kg on the table for June and into July – not exciting money if they have been on expensive grain but still modestly better than where the current physical market sits.