By Angus Brown | Source: MLA, Mecardo.
Dry weather continues to depress store stock prices, with the spectre of dry weather starting to creep into what were previously wet areas. As outlined in last Friday’s weekly summary, cattle are even cheap in Victoria and a punt on these has a good chance of paying off.
Southern store cattle markets are having supplies bolstered by light store cattle travelling south from NSW looking for buyers. Last week Mortlake and Pakenham both yarded large numbers of light young cattle looking for a home where the grass is green.
While the Eastern Young Cattle Indicator (EYCI) itself has managed to rally from its lows, this has been driven by demand from lotfeeder and processors. Restockers are still very much holding off.
Figure 1 shows that southern restocker prices did improve last week, but still sit at a 30¢ cwt discount to the EYCI, at 474¢/kg cwt. This is above the three and a half year lows set a fortnight ago, but at 255¢/kg lwt is still pretty cheap. Additionally, southern restocker prices are at a 5% discount to the EYCI, with the average for this time of year being a 3% premium. Anecdotal reports also suggest that the lighter cattle are, the less money they are making in ¢/kg terms.
With grain prices seemingly having found a level they are happy with, albeit in the $400-430/t range, we are relatively confident that 280¢/kg lwt is close to the lowest we are going to see the feeder steer market in the medium term. If we plug this number into a trading budget, it shows some pretty attractive numbers.
Figure 2 shows how we expect buying 250kg steers at 260¢ and putting 150kgs lwt on them to pan out. As always, it’s the cost of feed which is holding backgrounders back. While feed will be available for the next month or two in southern grazing areas, after that the uncertainty hits. Light cattle bought now might only be 300-350kgs lwt at the end of November when the season might be over for many areas.
Key points
* Restocker cattle prices in the south are cheap in absolute terms and relative to feeder and finished prices.
* The expected gross margins on buying light cattle are very good, but feed costs might start to eat into them.
* It is very rare to be able to buy cheap cattle in the spring, but it’s a punt on rain, either in the north or south.
What does this mean?
Buying light cattle in the south is a punt on rain. Rain in the south will extend the season and might allow cattle to reach feeder weights and make a good margin as outlined in Figure 2.
Early widespread wet season rain in the north will likely also offer a good result as store cattle demand will become very strong. This would allow cattle to be offloaded at a profit, despite not having reached feeder weights.
The main point is that it is very rare for young cattle to be able to be purchased at the start of spring, at prices which are cheaper than where they are likely to be in mid-summer. For those who like to buy discounted stock, it is an opportunity.
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