Market Morsel: Fat cattle, fat premium.
The price premium that the National Heavy Steer holds to the US Choice Fed Steer has averaged a 17% premium since the start of 2021, when compared on a USc/kg lwt basis. The Australian Heavy Steer is trading at 287 USc/kg lwt compared to 247 USc/kg for it’s American counterpart.
This is a record premium level and it doesn’t happen often as the long term price spread trend highlights. For more than two decades the long term average spread for Australian to US heavy cattle sits at an average discount spread of 30%, with a “normal range that sits between a 15% to 45% discount. Having the spread above parity (into premium territory) or below a discount of 60% would be considered extreme.
Indeed, the only time in the last twenty years that this spread moved into positive territory was for about a six-month period during the later half of the 2016 tight season. During 2020 the spread moved to a premium near the middle of the year and it continues to hold up at record levels as we begin 2021.
Given the tight season expected for this year it is unlikely to see it return to a discount in the near term and with our cattle prices sitting this high, in global terms, it will limit the ability for the Australian Heavy Steer to keep probing higher.