Below trend growth to continue
Risks remain amid rapid rise in cattle prices.
It is absolutely pedal to the metal for the cattle restocker market at present. The Eastern Young Cattle Indicator (EYCI) has reached 755c/kg, breaking its previous record of 726c/kg, set in August 2016. EYCI is now up over 58% since the start of January, an extraordinary result in two months. The speed of the 2020 EYCI rise is simply without precedent in modern Australian cattle market history.
The cause of this rally rests almost entirely with very good rainfall across much –but not all –of eastern Australia in January and February. Some regions have seen several hundred millimetres of rain already this year. This has put a rocket under the restocker market at a time where good stock have been hard to find on account of protracted drought.
Finished cattle prices have been good for some time –again reflecting difficulty sourcing quality stock due to the drought –but also on account of very strong export market performance. This has been particularly the case for China, which became Australia’s largest beef export market in the second half of last year. The impact of African Swine Fever on Chinese pig meat has been such that Chinese consumers are scrambling for protein.
However, it is important to note that the market faces two very substantial risks. The strength in the restocker market this year comes off the back of just two months of good rain in many (but not all) areas, following a crippling drought. On the other hand, the 2016 rally occurred amid the best seasonal conditions in living memory for many. Furthermore, of Australia’s four largest beef export markets, three (China, Japan and South Korea) face large coronavirus outbreaks. If these continue, demand fundamentals will certainly suffer. Coronavirus has brought a lower AUD (now mid-60s US cents), but this alone is unlikely to offset Coronavirus impacts.
For further details, please see the attached report:
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