Analyst Intel

10 May 2019

ACROSS THE RAILS: Turbulence surrounds R2 cattle sales

By Reece Brick

It's only in the last fortnight the weak R2 steer and heifer market has really become apparent. Using information from the eight North Island yards where AgriHQ collects data, the average beef and beef-cross R2 steer is making $2.70/kg, with heifers at $2.43/kg. The South Island is around 15c/kg lower on both classes. 

Why this has happened isn’t a simple question to answer. Schedules and feed levels are the usual go-to deciders for store prices but their influence doesn’t explain it all. Benchmarking against prime schedules shows these can essentially be ruled out as a problem, though more-so in the North Island. Late-summer/early-autumn was relatively tough going for some sections of the country but there is still a fairly large portion of both islands ticking over as well as can be expected.

So what else is the problem? Well, the number of dairy calves reared in the past two years is definitely playing a role. This is especially obvious in the South Island where it, and reduced calf sales into the North Island, have shifted the dial from an undersupply to oversupply in only two years. Add in the ongoing saga that is Mycoplasma bovis and it’s easy to see why agents are often funneling beef-dairy cattle into the sale yards to shift them. 

There also seems to be a change of tactic from buyers. Some finishers have been disappointed with the margins on store cattle bought last year, either sticking to stricter budgets or looking for alternative options in response.

What this will all mean for the coming 12 months will be quite interesting. Not all these issues can be resolved short-term, which begs the question of whether this is a short-term blip or a fundamental shifting of the store market. It wouldn’t be too surprising if it was the latter given there’s almost been a perfect storm of conditions that have underpinned store cattle prices through 2016-18.