A little too heavy
Market Morsel
The National Heavy Steer indicator just slipped under 300 cents/kg this week and currently trades at 290c/kg lwt. That equates to a nearly a 40% slide from the peak pricing seen last last year of almost 470c/kg. While the Aussie heavy steer market has been under significant pressure over 2023 the USA are seeing cattle prices for equivalent slaughter ready cattle (US Choice Fed Steer) near record highs.
A conversion of Australian Heavy Steer to USc/kg places the local steer at around 190US cents per kilo with an Aussie dollar currently trading around 65.5USc. Meanwhile the US Choice Fed Steer is just coming off its 396US cent peak from late April. Currently the US Choice Fed Steer sits around 385US cents a kilo on a live weight basis. For those that need help with the conversion to local pricing that equates to nearly 590 Aussie cents a kilo, blowing the doors off our “peak” pricing seen last season.
The huge discount that has opened up between US and Aussie heavy steers has pushed the spread discount between the two cattle types toward 51% this week, which is now outside of the normal range in spread we usually see between Australian and US Heavy Steers. Since 1998 the Aussie to US Heavy Steer spread has ranged between a 10% to 45% discount for 70% of the time, so that is pretty representative of the “normal” range.
The last time we saw spread discounts of this magnitude was during the 2014/15 drought when the spread deteriorated to nearly 60%. Even the 2019 drought only saw the spread widen to a 39% discount. Just for context the long term average spread for the Australian Heavy Steer to it’s US counterpart sits at around a 28% discount.
A look at the seasonal spread chart demonstrates just how uncharacteristic the current deterioration in the spread is presently. Normally, the seasonal pattern from June to October is for the spread to narrow so here’s hoping that the situation begins to improve for local cattle producers soon. In my mind current pricing for Aussie Heavy Steer isn’t really reflective of the pricing we are seeing at a global context and seems a bit undervalued, particularly given we are not experiencing any real drought impacts presently.
