Feeling a little deflated?

The Detail

The release of the Consumer Price Index (CPI) for the first quarter of 2022 allows us to update our historic nominal cattle prices, for the Eastern Young Cattle Indicator (EYCI) and the National Heavy Steer, to align the historic prices into current dollar values. The CPI provides the mechanism to “deflate” historic pricing and demonstrate what was being spent on cattle back in the olden days once you adjust for inflationary impacts.

A glance at the historic deflated chart for the EYCI highlights that current prices remain above all of the previous highs, in deflated terms. September 1965 saw the previous peak for the EYCI at 992.9c/kg cwt in 2022 dollar values, which equated to 67.9c/kg cwt in 1965 dollar values. June 1979 saw the EYCI back at these previous record level at 990.4c/kg cwt (2022 dollar values) or 187.8c/kg cwt in 1979 nominal values.

Interestingly, the deflated chart for the National Heavy Steer demonstrates that current prices, of around 823c/kg cwt or 444 c/kg lwt, are yet to breach the previous highs seen, once we adjust for inflation. Indeed, just before the cattle market crash in September 1973 the price of heavy steers in 2022 dollar values hit 1060.9c/kg cwt, or 572.9c/kg lwt. The value of Heavy Steers in 1973 nominal values was 103.2c/kg cwt, which translates to 55.7c/kg lwt.

Sometimes using a dollar per head measure is a better way of assessing the value of cattle, so we have adjusted the deflated EYCI c/kg prices into a dollar per head value based on an animal weighing 300kg lwt. Performing some rudimentary statistical analysis over the deflated dollar per head prices for the EYCI shows that, in 2022 dollar values, the long term average level for young cattle is $945 per head (black dotted line).

Historically, young cattle prices have spent 70% of the time trading between $660 to $1230 dollars per head (grey shaded region). Furthermore, dollar per head values below $374 or above $1,516 would be considered extreme (orange dotted lines), occurring just 5% of the time over the last six decades. Current dollar per head values for a 300kg lwt EYCI style animal of $1,785 is nearly 90% above the long term deflated average level for the EYCI.

A similar approach was taken to convert the deflated Heavy Steer prices to dollars per head, assuming a 550kg live weight for the steer. Current heavy steer values on this basis come in at $2,444 per head, which is 22% under the peak price of $3,151 seen in September 1973.

Analysis of the Heavy Steer dollar per head values demonstrates that the long term average value sits at $1,600, with a 70% range of $1,155 to $2,048. Meanwhile, movements in Heavy Steer values below $709 or above $2,494 per head would be considered extreme.

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