Cattle market now in risky territory

Cattle market now in risky territory

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TOP VIEW: Angus cattle run by National Australia Bank clients the Raff family in Tasmania.

TOP VIEW: Angus cattle run by National Australia Bank clients the Raff family in Tasmania.

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More downside than upside for EYCI: NAB's Beef In Focus report

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THE fast and heavy upsurge in young cattle prices this year since rain started to fall across eastern Australia has been unprecedented, unexpected and, many now fear, unsustainable.

Analysts and agents point out several substantial risks emerging - negative impacts on demand fundamentals in global markets, the need for ongoing substantial rain which is not forecast and exposure to trading losses for those who bought in at big costs.

The Eastern Young Cattle Indicator is at 754 cents per kilogram carcase weight, having last week smashed through the previous record of 725 cents a kilogram set in August 2016.

Many believe these prices are now unsustainable without a fantastic season across the majority of cattle-growing regions.

Analysts also say the astronomical uptick heralds a new era of greater volatility which is a natural consequence of changes around herd size management flowing from climate change.

National Australia Bank agribusiness economist Phin Ziebell said the past five years had seen more volatility in the cattle market than any other time in modern history, particularly in the restocker job.

Arguably that was coming on the back of more agility in herd sizes - advice around managing climate risk is heavily skewed to looking after pasture and country by buying and selling stock according to season, he said.

The challenge for the industry was that business management skills on the part of graziers now had to be much sharper.

"Producers will be making big financial decisions around destocking and restocking far more often - and doing it at the same time everyone else it," Mr Ziebell said.

The issues arising from the rapid rise in the EYCI - 55 per cent in less than two months - are closely examined in NAB's Beef in Focus report, released this morning.

National Australia Bank agribusiness economist Phin Ziebell.

National Australia Bank agribusiness economist Phin Ziebell.

The report points out the current strength in the restocker market comes after only two months of rain following severe and protracted drought. That is a situation very different to the winter 2016 rally which occurred following 6-12 months of what was possibly the best seasonal conditions in living memory, Mr Ziebell said.

Some parts of Queensland could perhaps say the 2020 rain so far makes a season but most still need a full season of above-average rainfall to recover and that is a risk for prices, he said.

While finished cattle prices have been good for a long time and export fundamentals in the second half of last year meant it was always going to be a high break for the EYCI when it rained, the extent and speed of the rise was not expected, he said.

One thing that pushed spirited restocking harder was the fact that not buying now posed its own risk in the possibility of being forced to buy higher down the track.

Agents report that has definitely been a motivation.

"At the end of the day if you have grass, you're supposed to have cattle," they said.

The NAB report said so far Chinese domestic wholesale prices had held up despite coronavirus but the impact on premium protein demand across east Asia could pose challenges for the market.

Agribusiness customer executive Khan Horne said South Korea and Japan were now dealing with major outbreaks and US preparedness to manage the virus remained unclear.

"Our price outlook for 2020 depends heavily on rain and with many areas still needing an excellent season to recover from drought, if anything there is more downside than upside for the EYCI at present."

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The story Cattle market now in risky territory first appeared on Farm Online.

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