A WIDESPREAD wetter-than-average spring and the potential for 2017 to be a La Nina year is pointing to cattle supply tightening even more than forecast as herd rebuilding shifts into overdrive.
That would continue to support very high cattle prices out until at least next autumn, a point when some analysts are now predicting the price correction is most likely.
Agribusiness specialists Rural Bank and Rural Finance says a lot of finance inquiry coming through now is around stock purchases, with some for land transactions.
“There is no doubt producers are focussed on rebuilding, and some expansion,” said Rural Bank general manager agribusiness Andrew Smith.
The bank’s September Australian Cattle Update says the three-month outlook to December for continued wetter conditions in the eastern states and average rainfall in the west should keep restockers active.
Bureau of Meteorology modelling has most of NSW and Queensland with a 60 per cent chance of exceeding median rainfall in spring, some parts of northern Queensland and the Northern Territory higher.
It has been a long time since cattle growing regions have had such an optimistic forecast, Mr Smith said.
“The key is how general the rainfall will be - that is what will build confidence into buying cattle at the current high rates,” he said.
It will come on top of the rainfall between May and July that was above average for most of the country’s major cattle regions.
Pasture growth had responded, fuelling cattle price surges, Mr Smith said.
The strong demand for bulls was another sign of rebuilding intention and the other place money was being spent was land purchases, he said.
“In northern Queensland, where the extended tough run prompted a number of properties to be put on the market, we have see a large number of stations changing hands,” Mr Smith said.
Buying interest had been a mixture of corporate activity, foreign investment and neighbours expanding, he said.
“As we come south, out of the station country, it’s more local demand,” he said.
Rural Bank and Rural Finance’s view on the global beef market is there is also cause for optimism.
“The underlying demand for protein is there,” Mr Smith said.
“When the cattle supply situation changes, we believe the markets will be there for Australian beef.”
Mr Smith said while the outlook for the sector continued to be strong, at some point cattle prices would need to adjust.
“The EYCI (Eastern Young Cattle Indicator) this year has been as much as 70pc higher than the five-year average and while there have been some very hard years in that period, that is still a significant shift,” he said.
Victorian-based commodities analyst Simon Quilty, Southern Aurora Group, believes that correction will come next March.
The ten months of exceptional growing conditions Australian cattle producers are now looking at was possibly unmatched, he said.
“Three months of good rain dovetailing into the traditional growing period is going to encourage holding and growing - the rebuild could be quicker and stronger than what has been predicted,” he said.
“It will mean extremely tight supplies on the cattle market and quite possibly the processor shutdown over Christmas will come much earlier.
“What we will have at the end of this period is much heavier cattle ready for market and that is what will trigger the price correction.”
The other key weather issue was the potential for La Nina next year, which could see the herd size rebound with growth exceeding 5pc two years in a row, Mr Quilty said.
He said a 29m head herd by 2019 was a distinct possibility.
“The herd rebuild is now looking like being much quicker than most might realise,” he said.
He said forward selling using hedging contracts was one way pastoralists could lock away margins.
