Mecardo Analysis - Falling grain price helping fill feedlots
- By: "Farm Tender" News
- Cattle News
- May 28, 2019
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By Angus Brown | Source: MLA, Trade.
Last week we took a look at the record numbers of cattle which were residing in feedlots at the end of March. This week we review lotfeeder margins, finding that things have improved markedly for the sector. This has implications for prices of feeder cattle and the supply of fed cattle going forward.
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Since harvest, grain prices have eased considerably. In both northern and southern markets delivered cereal and sorghum values have fallen 10-20%, most of which has gone straight to the bottom line of lotfeeders.
In addition, grainfed cattle prices have risen strongly since the start of the year. In January, lotfeeders were receiving just over 550¢/kg cwt for 100 day grainfed steers, according to the southern Queensland indicator. For the last two months, the grainfed steer indicator was over 570¢, and for the last fortnight, it has been 579¢.
The continual decline in the supply of finished grassfed cattle, along with improving beef export prices, have combined to increase demand for grainfed cattle. The Queensland 100 day indicator has only been above the current level five times, and not by far (figure 1). The record is 596¢/kg cwt, set in October 2016.
While grain has gotten cheaper and the finished product more expensive, the continual dry has seen a decline in feeder prices in March, before they recovered to previous levels in April and May (Figure 2). Lotfeeders are currently paying similar money for feeders as earlier in the year, but are paying less to feed them, and receiving more for the finished product.
Figure 3 shows the resulting estimated margins on cattle going in feedlots in recent times. In the north, margins haven’t been better in the last 10 years. In the south, more expensive grain and feeders are keeping margins lower, but still better than break-even after overheads.
We can see that stronger margins have been a while coming, having been below break-even after overhead for much of the last two years. Additionally, not all lotfeeders will be enjoying cheaper grain prices. Those who bought large portions of their requirement at harvest will still be chewing through the expensive grain, literally, which will be dampening margins.
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Key points
* Falling grain prices and improving Grainfed cattle prices have lifted lotfeeder margins.
* Feeder prices are still close to earlier in the year levels, having recovered from March declines.
* There should be 10-30¢ lwt upside for feeder prices as we move through winter.
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What does this mean?
Stronger lotfeeder margins are good news for those who have feeder cattle to sell in the coming months. Supply of young cattle, in general, will slow in the winter, while young cattle at feedlots weights will be even scarcer.
At current grain and grainfed cattle prices, lotfeeders could afford to pay 10-30¢ more for feeder cattle and still turn a small profit. Small profits are usually as good as it gets for lotfeeders over winter.
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