By Matt Dalgleish | Source: MLA, AuctionsPlus, Mecardo.
At the start of 2018 Mecardo published a piece on the Wagyu F1 steer premiums to the Eastern Young Cattle Indicator (EYCI). Anecdotal reports suggested that the flood of Wagyu cross activity has seen the premium fade away during the 2018 season, so we are back crunching the numbers to see if the Wagyu premium has indeed become a phantom.
The average monthly price movement pattern for F1 Wagyu steers weighing between 200-400 kg live weight sold via AuctionsPlus is highlighted in Figure 1. Overlaid on the chart is the monthly average trend for the EYCI. During September 2016 the EYCI averaged a price of 712¢/kg cwt. The monthly average EYCI for October 2018 was 512¢/kg cwt, a decline of 28%.
In comparison, the Wagyu F1 steer indicator didn’t reach its monthly average peak until November 2016 at 1438¢/kg cwt. However, the 2018 season has been unkind to the F1 Wagyu steer. A decline of 65% was recorded by October 2018 to see the monthly average sit at 500¢/kg cwt, a 2% discount to the EYCI.
Analysis of the historic Wagyu F1 steer spread to the EYCI shows that since July 2015 the monthly spread has averaged a premium of 68% to the EYCI, with a normal range of 41%-95% premium spread, as shown by the grey shaded zone (Figure 2). Movements in the spread below a 14% premium or above a 122% premium would be considered extreme, as identified by the 95% range boundary.
An obvious logic behind the falling Wagyu premium levels would be a flood of Wagyu cattle hitting the market. However, the analysis of monthly and quarterly volumes trading on the AuctionsPlus system doesn’t appear to suggest the decline in the Wagyu premium is volume related. There is plenty of anecdotal evidence to suggest that F1 Wagyu numbers being sold direct have grown and the Australian Wagyu Association annual report indicates that crossbred joinings have grown by 89% in the last four years.
During the first half of 2018, the quarterly average sales volumes of all Wagyu cattle sold via AuctionsPlus were sitting 49% above the long-term monthly levels. However, since July Wagyu volumes have dropped away, and the quarterly average volume is now trending 63% below long-term levels (Figure 3).
Links to our previous two Wagyu pieces can be found below:
Key points
* Since the third quarter of 2016 the EYCI has declined by 28% while F1 Wagyu steer prices have tumbled 65%.
* The Wagyu F1 steer monthly average spread to the EYCI has moved to a discount for the first time and is currently at a level considered to be abnormally low.
*The narrowing Wagyu F1 steer spread to the EYCI cannot be adequately explained by increasing supply.
What does this mean?
Evidently, there is more to this story than what the AuctionsPlus data can show and it is unclear if the AuctionsPlus data is reflective of the entire F1 Wagyu market.
Access to transparent market data, like the data that is available under the AuctionsPlus system, would be of benefit to the entire Wagyu industry as analysis could be undertaken to determine the current (and future) supply and demand scenario facing industry participants.
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