FROM record highs to decade lows, Australian cattle and sheep prices have fluctuated wildly over recent years. And according to new research by Rabobank, this unprecedented period of market volatility is here to stay – at least for now. But what is driving these extremes? 

In its report entitled "Managing increased volatility in Australian livestock markets", the bank's RaboResearch division said while volatility has long been a feature of livestock markets, both the scale and frequency of price swings have intensified significantly over the past five to 10 years. And it added this high level of volatility would likely persist for Australia's livestock sectors in the short to medium term.

Both cattle and sheep have repeatedly reached record highs in the last five years, with Rabobank saying each high had exceeded previous peaks by around 20 per cent – only to then fall to the lowest levels seen in the past decade. 

This is evident in data from Meat & Livestock Australia's National Livestock Reporting Service (NLRS). It shows the National Young Cattle Indicator (NYCI), for example, hit a weekly record high of 660.80/kg lwt in December 2021, before descending to 191.55c/kg lwt by early October 2023. It has since started on an upward trend – reaching a high point of 473.32 c/kg lwt last month. 

Meanwhile, the National Trade Lamb Indicator (NTLI) dropped from 975.96c/kg carcase weight in August 2021 to 432.76 c/kg to September 2023, with a sharp decline from the start of 2023. Again, it has since climbed and hit a weekly record of 1208.70c.kg cwt in August this year. 

AUSTRALIAN MARKETS DEEMED INCONSISTENT 

Author of the RaboResearch research report and Rabobank senior animal proteins analyst, Angus Gidley-Baird, said this increased level of volatility in Australian livestock markets was not consistent across other markets - either locally or globally.

He said this suggested while macro geopolitical and economic developments do have an impact, there were factors affecting Australian livestock markets which had led to the higher price volatility.

Gidley-Baird said there was a clear relationship between rainfall and livestock prices, with good seasonal conditions driving demand and prices higher, and dry conditions having the opposite effect. However, he added the increased price volatility was also not simply a reflection of more variable rainfall.

"While rainfall and confidence are important, they don't account for the magnitude of recent price swings," he said. 

"Other factors – including industry structure, debt levels, and global market dynamics – are increasingly influential."

WHAT'S CONTRIBUTING TO MARKET VOLATILITY?

RaboResearch said it was likely a combination of factors were behind the extremes in Australia's livestock market volatility. In addition to changing industry structure and increasing debt levels, these factors include increased exposure to geographically larger markets, growth in information flows and an increasingly unstable global trade environment. 

The report said the Australian livestock sector had become more exposed to geographically larger markets in recent years - with the closure of several small local saleyards, the increasing presence and throughput of larger regional saleyards, and the advent of online sales channels. Additionally, feedlots and processors were no longer sourcing livestock from local markets alone, with movement of cattle across state borders now a common occurrence. 

As a result, it was no longer just local, smaller market conditions that influenced buyer and seller behaviour, but the larger broader market that causes bigger market movements.  

Adding to this, RaboResearch suggested the streamlining of the supply chains, particularly for cattle, may also be contributing to market volatility. According to the report, more livestock was being sold through private sales – including direct consignment to feedlots or processors – reducing the volume and quality sold through saleyards.

"Due to the more exaggerated supply and demand movements in these saleyard markets, we expect to see greater volatility resulting," Gidley-Baird said.

He noted saleyard auction prices are used for livestock market reporting, and the RaboResearch research was based on those reports. 

Gidley-Baird said greater exposure to a wide selection of information for market participants was another likely contributor to price volatility.

"With information and sentiment flowing faster and further than ever before, producers are now reacting to a wider array of signals, from weather forecasts to global trade headlines, which amplifies market movements," he said.

The increasingly unstable geopolitical environment, including a general move away from globalisation and trade liberalisation, had also likely contributed to an unstable livestock market more recently. 

"Added to this ‘complex' is a growth in global protein consumption, increased global trade of proteins and the increased presence of diseases, which affect not only production but also trade arrangements," Gidley-Baird said.

AUSTRALIA'S CHANGING LIVESTOCK INDUSTRY 

RaboResearch proposed the livestock industry had also changed in structure – becoming more "polarised," with an increasing proportion of livestock numbers in large or small farms and less in medium-sized operations.

"This leads to different decision making," Gidley-Baird said. 

"Smaller farmers may not be driven by the same profit motives or have access to alternative income streams and larger more corporate-style operations may have different reporting responsibilities and decision-making processes, impacting their participation in the market and possibly adding to more pronounced market movements."

He added increased debt levels and financing costs may be contributing to livestock producers making more "dramatic decisions."

Volatility was not inherently negative, according to RaboResearch, which said it "simply represents risk, and potentially opportunities." 

Nevertheless, the bank said the volatility was likely to persist in the Australian livestock sectors for the short to medium term, and industry participants should at least prepare to manage it.

"This requires a strategic approach that reinforces adaptability, promotes resilience and improves predictability," Gidley-Baird said.

"There is a renewed case for embedding resilience and predictability into business planning, which can help producers navigate uncertainty with greater confidence and avoid reactive decisions that may carry long-term consequences."

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