By Angus Brown | Source: MLA, Trade, Mecardo.
We have seen some marked movements in cattle prices to open the year, and grainfed cattle prices have not been immune. Harvest is also over, and there is some consensus that grain values might have found a level they are happy with. Here we take our regular look at the fundamentals for lotfeeders and what this might mean for feeder cattle prices.
After a pre-Christmas rally grainfed cattle prices have been on the wane. Input costs rose in line with the higher finished cattle prices back in December, but lotfeeders have not enjoyed much of a fall in feeder cattle or grain prices since. Falling output prices and steady input prices has inevitably led to a squeeze on lotfeeding margins. It seems respite might only come from rising output values.
Figure 1 and 2 show the input costs versus grainfed cattle prices for both northern and southern lotfeeders. There is little difference in the grain price, which is costing close to $400/t in both zones. Feeder prices are 10¢ cheaper in the north, according to Meat and Livestock Australia’s paddock feeder quotes.
There has been a small fall in feeder cattle prices, likely due to the squeeze on margins. However, at 307¢/kg lwt in the north, and 317¢ in the south, prices are still pretty good on historical measures. In fact, in the north, feeders are still 10¢ stronger than this time last year.
Historically strong feeder prices are no doubt due to tight supplies. The herd liquidation, lower marking rates and lack of grass for backgrounding means lotfeeders have to pay 60-70¢/kg lwt over the Eastern Young Cattle Indicator (EYCI) to secure supplies of young steers over 400kgs lwt. This is as strong a premium as we have ever seen.
With over 1.1 million head of cattle on feed, there has been room for grainfed prices to fall. With more unfinished and female cattle filling kills, it seems processors have been able to pull prices back. QLD 100 day Grainfed Steer prices have fallen 24¢ since the end of November.
Key points
* Grainfed cattle prices have fallen but lotfeeding inputs are largely steady.
* Northern lotfeeders’ margins are tight, and they are in the red in the south.
* It’s hard to see falling feeder or grain prices, with margin improvements to come from finished cattle prices.
What does this mean?
Figure 3 shows southern feeder margins moving back into the red, and this is before overheads. In the north the $40-50 margin is keeping a floor in feeder values, although lotfeeders are likely breaking even at best after overhead. Vertically integrated operations will also be helping prop up feeder values, in order to keep finished cattle coming.
It’s hard to see supply of feeders improving, or grain prices falling, so the hope for lotfeeders is tightening supply of cattle to processors which will see them coming to feedlots to fill kills. The rain currently falling in Queensland will help in the north, but some further south is also need.
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