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Tuesday, August 11, 2015

Higher grainfed cattle and lower grain prices help lotfeeder margins

By Angus Brown  |  Source: MLA's NLRS

Key points

  • Lotfeeder margins have improved over the last month on the back of a rally in grainfed cattle prices and easing in grain prices.
  • Margins are again strong enough to encourage good supplies of grainfed cattle.
  • There is a little further room for feeder prices to move higher, but it’s only in the order of 10-15¢/kg lwt.


2015-08-11 Feedlot Margins FIG 1

2015-08-11 Feedlot Margins FIG 2

2015-08-11 Feedlot Margins FIG 3

It’s not just grassfed and store cattle prices that continue to rise. Grainfed over the hooks values have also gained ground, and this is helping to drive feeder markets. Here we take a look at current lotfeeder margins to assess if these will limit upside in the feeder and store cattle market going forwards.

The Queensland 100-day over the hooks grainfed steer (Grainfed steer) price rallied strongly again, after having a three month break in autumn.  Since the start of May, the Grainfed steer price has risen 64¢, or 13%, to a new record of 547¢/kg cwt (figure 1), and sits an extraordinary 140¢ above the same time last year.

Grainfed cattle price rises have been matched by increases in feeder cattle values over the last three months. As an example, the Eastern Shortfed Feeder price has gained 50¢/kg lwt, or 19%, to sit at 311¢/kg lwt. This has pushed the break-even price of feeding 100-day cattle to 513¢/kg cwt. 

Grain prices in southern markets remain around 10% cheaper than those in the north. However, they rallied in both markets in June, which helped squeeze margins to an extent.  Grain prices have eased since then, which has helped add a little to margins.

The dollar per head buy and sell figures are getting pretty high. A 340kg cwt grainfed steer is currently worth around $1,850, while the replacement feeder weighing 420kg lwt comes in at $1,300.  Feed costs come in at $400-450/head, which gives us a margin of $110-140 for cattle bought today and contracted at current rates (figure 3).

The margin on feeding cattle fell to close to break-even back at the start of July because grain and feeder cattle price rallied in unison as winter cattle supplies tightened.  Since July, stronger export markets and a falling Australian dollar have given further support to the grainfed cattle price, which had to rise to maintain the flow of cattle through feedlots.

For cattle that have been fed on speculation - that is, bought in May with no sell price locked in and sold this week - the margin is a very healthy $300-330/head because of the rising market.  

What does this mean?

With lotfeeder margins looking relatively good in the current market, we can see that export markets and processors continue to drive cattle markets in general.  In contrast to July, when lotfeeder margins were being squeezed, there is a little bit of room for feeder cattle prices to move higher in the current market. However, this is only in the order of 10-15¢ before feeding cattle become marginal after overheads. 

If feeder prices rise by 20-30¢, feedlot margins will start to slow production.  However, with the Victorian Heavy Steer indicator at 650¢/kg cwt last week, a full 100¢ over the grainfed steer indicator, there could be room for grainfed cattle prices to rally further if supply tightens.

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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