By Angus Brown | Source: MLA, Mecardo
When the March cattle on feed survey came out, we took a look at lotfeeder margins and concluded there were a lot of cattle on feed making not much money. In the period from March to June, more cattle went into feedlots and grain price rallied. Margins have been squeezed further which will add serious pressure to feeder and grain-fed cattle prices, in opposite directions.
Normally when we get record numbers of cattle on feed it’s due to strong margins; the more cattle that are on feed, the more money is made. The current record number of cattle on feed is in spite of 10-year high grain prices and in the south at least, record feeder input costs.
It should be noted, however, that the latest rally in grain prices has come since the end of June. The latest numbers of cattle on feed doesn’t account for the latest $50/t rally in northern grain prices and $80/t increase in the south.
The lack of heavier feeder cattle has seen export feed prices remain relatively steady in the face of rising grain prices. This saw input values in southern markets hit the record high of $5.75¢/kg cwt (Figure 1) before feed values eased 20¢ a week ago. The sell price of 100 day grain-fed cattle is lagging input costs, and this puts the margin for cattle put onto feed last week at negative $71/head (Figure 2).
We have seen consistently negative margins in feedlots in the past, and it usually leads to a sharp decline in numbers of cattle on feed. Vertically integrated operations can wear a loss in the feedlot as it can sometimes be made up in the processing margin, but smaller feedlots will often go empty.
Lighter feeders, which are fed for shorter periods for the domestic market, are likely to be propping up cattle on feed. Feeders in saleyards weighing 330-400kgs are making between 250 and 270¢/kg lwt and will be fed for a shorter period. Sale prices for domestic grain-fed trade steers are similar to export values in ¢/kg term and as such these cattle will be delivering a smaller loss, if not a small profit.
Key points
* Rising feed grain costs and steady feeder prices have seen lotfeeder margins decline.
* Losses in feedlots are contrary to record numbers of cattle on feed.
* Negative feedlot margins put upside pressure on finished cattle prices and downside pressure on feeder prices.
What does this mean?
Negative lotfeeder margins can’t last too long while maintaining supply of finished cattle, so something is going to have to move. If it’s not grain prices, there will be pressure on grain-fed cattle prices to rise and feeder prices to fall. At this stage, with the lack of grass and therefore dearth of heavy young cattle, it looks like it might be finished cattle prices which will have to rise to keep cattle flowing through feedlots.
Export feeder prices are going to have to stay relatively strong to encourage backgrounders to put in the time, effort and feed to get them up above the 400kg liveweight mark.
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