By Angus Brown | Source: ALFA, MLA
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).
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.
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