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By Angus Brown | Source: MLA, ALFA, Mecardo
Key points
· Grainfed cattle prices have hit a new record, surpassing 2016 levels.
· Feeder cattle price rises have matched the higher grainfed prices, keeping margins steady.
· With new crop grain prices rising further, upside for feeders seems limited.
Despite record numbers of cattle on feed at the end of June, grainfed cattle prices have hit a new record. The stronger demand for grainfed cattle and cheaper grain prices are also flowing through to feeder values, and leaving a little in it for lotfeeders.
Strong export demand, a weaker Australian dollar and tight supplies of grass finished cattle has seen the Queensland Over the Hooks 100 day Grainfed Steer Indicator hit a new record in recent weeks. The upward trajectory this year has taken grainfed cattle prices from 547¢ in March to hit the new high of 598¢/kg cwt at the end of August.
The previous record grainfed cattle price of 596¢/kg cwt was set back in late winter and spring 2016 when the number of cattle on feed was 788,873 head. The fact that the new record price has been set when there are 45% more cattle on feed is a testament to the increasing demand for grainfed cattle.
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Figure 1 shows that rising grainfed cattle prices have been matched by rising input costs in the north. Grain prices for northern feedlots have been relatively steady, with sorghum tracking around $350/t (used for inputs in figure 1) and wheat $400/t, but feeder cattle prices have been on the rise.
The Shortfed Feeder Cattle Indicator has rallied 12%, or 37¢ since the end of April to sit at a two year high of 333¢/kg lwt.
Southern lotfeeders input costs are higher, with medium fed feeders at a 10¢ premium to shortfed steers, sitting at 343¢, which is also a two year high. The price of wheat in the Riverina has varied from $350-410/t this year and last week was sitting towards the bottom of this range at $354/t. Cheaper feed has offset some of the rise in feeder cattle prices. In recent weeks, this has seen total input prices fall.
Moves in input and sell prices have seen lotfeeder margins remain relatively steady for the last four months in both northern and southern zones. Figure 3 shows that in the north the cheaper sorghum is keeping margins around a healthy $150/hd before overhead. Feeders in the south, or those using cereals in the north, are doing it tougher, running on margins between $50-100/head before overheads.
What does this mean?
While grain prices have been falling this year, we might have recently seen the bottom. New crop values rallied last week, with old and new crop values now similar. There was hope grain might have fallen under $300 in the south, but that now seems unlikely.
Given the move in grain prices there seems to be limited further upside for feeder cattle. There is a little room for prices to rise, without a move in grainfed cattle values, but margin pressure will start to come on lotfeeders with as little as a 10¢/kg lwt rise in feeder prices.
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