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Wednesday, May 11, 2016

Best bet for feeders next summer

By Angus Brown  |  Source: MLA

Key points

  • A reader asked for our ‘best bet’ on feeder cattle prices for next summer.
  • Based on last summer, prices are likely to range between 280 and 320¢/kg lwt.
  • A lower AUD, stronger international cattle prices, and rain in Queensland could see a new record feeder price early in 2017. 

2016-05-11 Best Bet For Summer Feeder Prices Fig 1

2016-05-11 Best Bet For Summer Feeder Prices Fig 2

With rain falling across major southern cattle areas, and the promise of a wetter than normal winter, many understocked producers are turning their mind to buying stock to eat what will hopefully be an abundance of feed. A reader thinking along these lines posed us the simple question, what’s your best bet price for feedlot steers December to March?

Rather than pulling a number out of thin air, or falling back on simply quoting last year’s price, we thought we’d put some numbers around the most probable result for feeder cattle in the coming summer.

Feeder cattle prices are driven by a wide range of factors, with international beef prices, the exchange rate, local cattle supply, grain prices and of course rainfall, all able to shift the price markedly.

Interestingly, despite some strong volatility in all these factors over the last 10 months, the Medium Fed Feeder Steer price has managed to trade in a relatively narrow range.  After breaking through 300¢/kg lwt in July last year the Medium Fed Feeder has hit a high of 341¢ in October, and is currently sitting close to the low of 308¢.

To assess where December to March feeder prices might end up, we can take a look at where they were during that period in 2015-16, and see what might change.

Last December saw strong grainfed cattle prices, at 564¢/kg cwt, which helped explain feeder cattle prices in the 330-340¢/kg lwt range.  Falling grainfed cattle values, which now sit at 516¢/kg cwt (figure 2), have been partially offset by lower grain prices, but are likely to remain a drag on feeder values, unless they turn around.

US Live Cattle Futures, which help set international beef prices are at a similar level to December last year, and it is the strong Aussie dollar which seems to be helping to grainfed cattle prices lower.  As such there is some potential for upside in grainfed cattle markets, while downside looks to be limited.

As always, grain prices could do anything between now and next harvest, with futures suggesting they’ll be around current levels, but strength will obviously put downside pressure on feeder prices, while further weakness will add support.

What does this mean?

Based on current market fundamentals, and where futures markets suggest they are headed, we would expect feeder cattle prices to succumb to supply pressure in late spring and early summer, and dip under 300¢/kg lwt, before recovering to 310-320¢ in February and March.  This is our ‘best bet’.

However, futures markets rarely get things right, and it currently looks like some upside potential for feeders could come from international beef export prices and a lower Australian dollar.  As always the big risk to prices is a poor season and rising grain prices, which have the potential to push feeder prices back towards 250¢/kg lwt.

A good wet season in Queensland, combined with some strength in grainfed beef export prices and weak grain prices, could feasibly see feeder cattle prices hit a new record of 350¢/kg lwt.

Mecardo information is provided to assist in your marketing decisions. It contains a range of data and views on the current market. It is not intended to constitute advice for a specific purpose. Before taking any action in relation to information contained within this report, you should seek advice from a qualified professional. The information is obtained from a variety of sources and neither Mecardo nor Ag Concepts Advisory will be held liable for any loss or damage whatsoever that may arise from the use of information or for any error or mis-statement contained in this report. 

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