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Tuesday, May 26, 2015

Higher feeder prices no deterrent for lotfeeders

By Angus Brown  |  Source: MLA, ALFA

Key points

  • Cattle on feed numbers remain very strong, falling just 1% in the March quarter from record highs.
  • Grainfed cattle marketings are strong, and have been rising as a proportion of slaughter, indicating grassfed supply might be waning.
  • Record grainfed cattle prices continue to draw cattle into feedlots.
  • Feedlots are running at a record 84% capacity, and this should continue to support all cattle prices.


2015-05-26 ALFA Survey FIG 1

2015-05-26 ALFA Survey FIG 2

2015-05-26 ALFA Survey FIG 3

The numbers of cattle on feed in Australia fell just 1% in the March quarter. This sets a new record for the quarter, along with a host of other highs. Steady numbers suggest demand remains extremely strong for grainfed beef. This is flowing through to feeder cattle and assisting with record prices.

Figure 1 shows cattle on feed at the end of March totalled 959,141 head, down just 5,827 head from the December total.  Cattle on feed numbers fell marginally in NSW and Queensland, but this was partially offset by increases in WA and SA.

It was the big feedlots that took on more cattle in the March quarter, with numbers on feed in feedlots with 10,000 head capacity or more rising 5%.  The increase in the large feedlots was offset by a 9% fall in medium feedlots (those with capacity of 1,000-10,000 head).  It would appear, looking at shifts in capacity numbers, that some feedlots increased capacity (ie more capacity in larger feedlots), taking their cattle with them.

Grainfed cattle marketings were also marginally lower in March, being down 3% in Queensland and 34% in Victoria, but up 15,000 head in WA.  WA cattle on feed remains highly seasonal, with a majority of grainfed cattle turned off when grassfed cattle are unavailable.

Grainfed cattle accounted for 32% of all cattle slaughtered in the March quarter. This is the highest level since September 2013 (figure 2), which suggests that grassfed slaughter is waning. The increase in grainfed cattle is keeping processors running at full capacity. 

Figure 3 gives a reasonably clear indication of what is driving record levels of cattle on feed, with over the hooks grainfed steer prices last week hitting a new record high of 498¢/kg cwt.  Tightening cattle supply, or the spectre of tightening supply, continues to drive processors to push grainfed cattle prices higher, and encourage lotfeeders to keep running at a record 84% capacity.

What does this mean?

Feedlot buyers have been driving young cattle prices in 2015, and continued increases in grainfed cattle prices continue to make lotfeeding an attractive option.  The fact that grainfed cattle prices are still rising in the face of record supply suggests that demand for grainfed beef remains very strong, and is possibly rising as grassfed supply wanes.  

Continued record levels of cattle on feed are just another pointer to the strength of cattle and beef demand, in spite of high feed and feeder cattle costs.  This reinforces the theory that cattle prices still have some way to rise if supply ever tightens from the recent record levels.

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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