Brought to you by AG Concepts

Tuesday, August 18, 2015

Feedlots full at June’s end, but turnoff slower

By Angus Brown  |  Source: ALFA, MLA

Key points

  • Australian Cattle on Feed numbers fell marginally in the June quarter, but remain close to record levels.
  • Grainfed cattle marketings and placements were much lower in the June quarter, as feeder cattle supply and feedlot margins tightened.
  • The backlog of grainfed cattle has not impacted prices in July and August, with demand for grainfed beef remaining very strong.

2015-08-18 ALFA Survey FIG 1

2015-08-18 ALFA Survey FIG 2

2015-08-18 ALFA Survey FIG 3

Cattle on feed in Australian feedlots remained very close to record levels in June, being just 0.2% below March levels. However, there was a sharp downturn in cattle turnoff in the June quarter. This means that it is likely that more cattle will be turned off in the September quarter, partly offsetting weak supply off grass.

Figure 1 shows Australian cattle on feed at the end of June was again over 950,000 head, slightly weaker than March and December, but 13% above the June 14 quarter.  Queensland recorded a 1.7% increase in cattle on feed, which was offset by a 3% decline in NSW and larger 24% and 11% decreases in WA and SA, respectively.  However, these are smaller feedlot states, both accounting for around 3% of total cattle on feed.

The strong numbers of cattle on feed were not driven by strong placements of cattle on feed. Rather, weaker marketings, or turnoff, caused the total cattle on feed numbers to remain high.  There were 648,557 head marketed out of feedlots in the June quarter (figure 2), which is (remarkably) exactly the same as the September 2014 quarter and 10.5% lower than the June 2014 quarter.

As outlined in our look at feedlot margins last week, there was little incentive to increase feeding programs in the June quarter as margins tightened. This was reflected in lower placements of cattle on feed, with an estimated 646,343 head coming into feedlots in June.  While placements were 9% lower than the March quarter, they were the same as June 2014.  June is traditionally a low month for cattle placements as supply of feeder cattle is tight.

Lower marketings and placements in the June quarter would have meant that, at the end of June, there would have been a higher than normal proportion of cattle approaching marketing weights. You would normally think that this might depress prices in July.  However, the QLD over the hooks 100-day grainfed steer price gained 40¢, or 8% in July, so demand must have been very strong.

Feedlot capacity increased by 24,431 head in the June quarter, with increases in NSW and Victoria, and a small fall in Queensland.  With steady cattle on feed, and an increase in capacity, feedlot utilisation fell 2 points to 82%, but this remains very high (figure 3).

What does this mean?

Cattle on feed margins tightened to a point in the June quarter where there was no longer incentive to grow the numbers of cattle on feed. However, lotfeeders are far from bleeding, with record numbers remaining in the lot as demand for grainfed cattle continues to grow. 

Historically, when cattle feeding margins turn bad, cattle on feed numbers fall heavily, such as in 2007. We haven’t reached this point yet despite record feeder cattle prices.  It will be interesting to see how cattle on feed numbers play out if we ever see the drought break in Queensland, and lotfeeders have to compete heavily with restockers for young cattle.  It’s hard to see cattle on feed remaining above 950,000 head, but price declines are unlikely.

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. 


Sign up for a FREE BASIC SUBSCRIPTION now to read this article.

Mecardo will send you its latest market analysis outlook delivered to your Inbox as it's published.  You will also receive one month Premium access for free.

You tell us what information you want to hear about, so you'll only be alerted to information that is relevant to you.

Learn more about Mecardo Sign Up Now!