In this webinar, Meat & Livestock Australia’s (MLA’s) Manager, Market Information, Ben Thomas will outline the key points of MLA’s latest five-year cattle industry projections, released in mid-October. Mecardo’s Matt Dalgleish will then look at what these projections mean for prices, and a short explanation of cattle forwards.

1. MLA cattle outlook and 101 cattle forwards
20th October 2016
Presented by:
Ben Thomas, MLA & Matt Dalgleish, Mecardo

2. Before we start
» Presentation is content rich – Charts and Figures.
» Charts will be used to show trends and tell a story don’t
get too caught up on the details.
» Relevant information for strategic long-term decision
making.

3. Ben Thomas
Manager, Market Information
Matt Dalgleish
Senior Market Analyst
Andrew Whitelaw
Grain Analyst & Manager, Business
Development

4. Mecardo – Cattle Market Update
October 2016
Ben Thomas – Manager, Market Information

5. From dust to deluge

6. From one unprecedented level to another
100
110
120
130
140
150
160
170
Thousandhead
Source: MLA, rolling 12 month average eastern states cattle slaughter

7. Cattle herd - population changes
2015-16 on 2012-13 percentage change
Legend
More than 41%
31 to 41%
21 to 30%
11 to 20%
1 to 10%
0
-1 to -10%
-11 to -20%
-21 to -30%
-31 to -41%
More than -41%
Shaded regions have greater than 20,000 head
2015-16 figures are MLA estimates based on ABS data
Percentage changes are from the national herd peak in 2012-13 (29.3 million head)
Note:
1,256,969
2,114,568
781,200
161,004
1,346,351
946,306
134,401
2,676,644
550,6544
351,194
479,409
852,221
704,392
838,925
127,640
638,081
555,381
732,685
115,243
453,066
406,609
227,629
329,814
57,301
328,662
98,550291,121
452,132
216,250
175,225
20,675
28,003
86,471
107,568
693,162 588,446
152,641
383,936
570,641
75,722
869,220
362,425
431,441
327,163
818,357
1,094,022

8. Dashboard of 2016 production changes*
-30
-25
-20
-15
-10
-5
0
5
Adult cattle
slaughter
Male
slaughter
Female
slaughter
Total
Production
Carcase
weights
%
year-on-year 5 year
Source: ABS
* = January to July

9. -20
-15
-10
-5
0
5
10
15
Grainfed
beef
Grassfed
beef
%
year-on-year 5 year
• 10-year average grainfed proportion
of production is 36.6%
• Exceeded that in wet years – with
more grassfed cattle retained
• 2015/16 grainfed production was
39% - expectations for 2017 are
slight reduction, to 38%, on the back
of herd rebuild offset by high feeder
cattle prices
Dashboard of 2016 production changes*
Source: ABS, MLA estimates
* = change from 15/16 fiscal year

10. More US beef, pork and chicken to come
Source: September World Agriculture Supply Demand Estimates

11. Australia vs global beef exports
200
700
1,200
1,700
2,200
2,700
3,200
‘000tonnescwe
Brazil
Australia
India
US
Source: OECD
Forecast

12. Beef to China region* from major exporters
0
50
100
150
200
250
300
350
400
450
Mar-10
Aug-10
Jan-11
Jun-11
Nov-11
Apr-12
Sep-12
Feb-13
Jul-13
Dec-13
May-14
Oct-14
Mar-15
Aug-15
Jan-16
Jun-16
‘000tonnesswt
US
Uruguay
Australia
India
NZ
Brazil
Source: Global Trade Atlas, quarterly basis
*=Direct shipments from each respective country to aggregated China, Vietnam and Hong Kong

13. Impact of all this on the market…

14. Restockers driving market more than ever
200
300
400
500
600
700
800
2010 2011 2012 2013 2014 2015 2016
¢/kgcwt
Feeder Processor Restocker
5¢*17¢*22¢*
48¢*
24¢*
10¢*
Source: MLA
EYCI by buyer type, latest data includes up to 13 September 2016; *= Restocker premium over processor purchases
21¢*

15. US Imported 90CL vs Medium Cow*
0
100
200
300
400
500
600
700
800
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
¢/kg
Medium Cow
Cow Meat 90 CL
Difference
Source: MLA, Steiner Consulting Group
*= Medium cows are 400-520kg D3, national average across all NLRS reported saleyards

16. Conclusions
On one hand:
• Tightest supply of cattle in 20 years
• Exceptional winter rainfall – set for abundant spring feed
• Restockers have entered the market in force
But on the other:
• Global beef prices have softened from the highs of 2014 and 2015
• US production and competition is on the rise
• Brazil continues to push more beef into China
• A$ strengthened in 2016

17. Disclaimer
Care is taken to ensure the accuracy of the information contained in this publication. However MLA cannot accept
responsibility for the accuracy or completeness of the information or opinions contained in the publication. You should
make your own enquiries before making decisions concerning your interests. MLA accepts no liability for any losses
incurred if you rely solely on this publication.
Information contained in this publication is obtained from a variety of third party sources. To the best of MLA’s knowledge
the information accurately depicts existing and likely future market demand. However, MLA has not verified all third party
information, and forecasts and projections are imprecise and subject to a high degree of uncertainty.
MLA makes no representations and to the extent permitted by law excludes all warranties in relation to the information
contained in this publication. MLA is not liable to you or to any third party for any losses, costs or expenses, including any
direct, indirect, incidental, consequential, special or exemplary damages or lost profit, resulting from any use or misuse of
the information contained in this publication.
Care is taken to ensure the accuracy of the information contained in this publication. However MLA cannot accept
responsibility for the accuracy or completeness of the information or opinions contained in the publication. This information
is not medical advice and you should consult a health professional before making any decisions concerning your interests

18. Mecardo Market View

19. Short term correction levels

20. EYCI – 90CL spread forecasts

21. EYCI longer term forecasts

22. EYCI long term forecasts

23. What are forward contracts & how
do they work?

24. Overview of a forward contract
» Commitment to deliver a certain amount of a
product within a certain time period.
» Settled through cash or physical delivery
» Used to reduce price risk
» Lock in price components in advance of
trading the physical product
» Works in conjunction with trading the physical
product by locking in the overall price
received for the product

25. Current forward products
» Direct forward contracts (tailored)
» Auctions plus forward contracts (tailored)
» Riemann forward contracts (standardised)

26. Riemann Cattle
» Cattle – cash settled against EYCI
– 4,000 kg minimum contract with 1,000 kg
increments
– Maturity dates are the second and fourth
Thursday of the first six months with maturity
dates set against key saleyard selling days,
and then every fourth Thursday per month for
the next 18 months
– http://www.riemann.com.au/wp-
content/uploads/2016/03/Riemann-Cattle.pdf

27. Why use a Riemann forward contract
» Helps to mitigate price risk
» Licenced and regulated marketplace
» Independent and transparent market for
buyers and sellers
» Producers, processors and investors have
easy access to risk management tools
» Participants not subject to margin
requirements

28. How does it differ from a physical delivery
contract
» Not settled by physically delivering cattle
to the buyer
» Cash settled against the EYCI
» Therefore, at time of settlement the
difference in price of the EYCI must be
paid by either the buyer or seller

29. Example
» The forward contract rate was locked in at
675c
» At maturity if the EYCI is at 660c the
buyer must pay the seller the 15c
difference
» OR
» At maturity if the EYCI is at 680c then the
seller must pay the buyer the 5c
difference

30. Example
• John is a cattle producer from Queensland
• He is planning to sell 60 head of 500kg heavy steers in
Jan 2017

31. Example
• John is a cattle producer from Queensland
• He is planning to sell 60 head of 500kg heavy steers in
Jan 2017

32. Pros and Cons
» Standardised product means increased
participants
» Transparent prices
» Broad based buyer/seller access
» Cash settled
» No physical delivery required

33. Pros and Cons
» Standardised product – not tailored to
cattle type and exact date of sale
» Spread risk between EYCI and cattle
type/location (no different to physical
sales)

34. Q&A
Ben Thomas
Manager, Market Information
Matt Dalgleish
Senior Market Analyst
Andrew Whitelaw
Grain Analyst & Manager, Business
Development

35. More information
» Matt Dalgleish
matt@agconcepts.com.au , 0439 454 557
» Andrew Whitelaw
andrew@mecardo.com.au, 0457 054 169
» Non-Mecardo subscribers will receive one
month of Mecardo premium access for
free