Victorian OTH indicators most closely aligned with EYCI

02 July 2015

Saleyard prices have enjoyed a remarkable run since the beginning of 2015, with the Eastern Young Cattle Indicator (EYCI) cracking the 530¢/kg cwt mark earlier in the week. Over-the-hooks (OTH) prices, as reported by MLA’s National Livestock Reporting Service, have also trended upward, albeit at a slower pace.

Currently, the Victorian OTH trade steer indicator (240-260kg cwt, A-C muscle) is at 498¢ – around 27¢/kg cwt below average saleyard prices for Victorian EYCI eligible cattle. Despite NSW EYCI eligible cattle prices currently averaging the highest of all three states, at 541¢/kg cwt, the NSW OTH trade steer indicator is lagging 82¢/kg cwt behind, at 459¢/kg cwt.    

As a result of market forces, saleyard and over-the-hooks (OTH) prices will naturally move in close correlation and, in the long-term, converge. However, in the short to medium term the relative strength of the relationship appears to differ between states, particularly in the young cattle market.

For the first six months of 2015, the Victorian OTH trade steer indicator has been more sensitive to movements in saleyard prices than has been the case in NSW and Queensland, responding almost immediately to an increase in the price of EYCI eligible cattle within the state. This is highlighted by the strength of correlation between the two variables – for Victoria it is extremely strong at 0.98 (where 1 equals perfect positive correlation, meaning that a change in the EYCI will always predict a change in the same direction for the OTH indicator). In NSW the correlation co-efficient is 0.83, while Queensland is slightly lower (although still strong) at 0.79.  

It is unsurprising that Victorian OTH prices are more likely to react to the weekly fluctuations in the EYCI, considering the relatively stronger presence of processors through Victorian saleyards. Over the past twelve months, 65% of all EYCI eligible cattle were purchased for slaughter. In NSW and Queensland, however, the processor share of the young cattle market in saleyards was significantly lower, at 31% and 11%, respectively. The added presence of feeder interest in northern saleyards appears to dampen the speed at which northern OTH indicators respond to changes in the value of the EYCI.

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