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Monday, August 01, 2016

What do the forward feeder prices say about spring

By Angus Brown  |  Source: NLRS, Auctionsplus

Key points

  • Auctionplus Forward feeder cattle sales prices were largely in line with normal seasonality, from the time of the sale.
  • The recent jump in feeder prices makes forward prices look a little cheap if anything.
  • The late October forward price would take a larger than normal decline, but we have seen heavier falls in the past.

2016-08-01 FORWARD CATTLE FIG 1

2016-08-01 FORWARD CATTLE FIG 2

Feeder cattle prices have been on the march in recent times, setting new records in line with other cattle indicators. It has been a good time for a recent development from Auctionsplus which has held feeder cattle for sale for delivery over the coming three months. This article looks at the question of whether the prices being achieved are likely to be around where we will see spot prices in the spring.

A fortnight ago Auctionsplus held a Targeted Feeder Sale, which had growers offering feeders for delivery from the end of July through to the end of October.  The feeder cattle offered were largely out of NSW, with a few lots in Victoria and Southern Queensland. 

Importantly, most of the cattle sold were steers which are expected to weight 400-450kgs liveweight, which makes them directly comparable with the Mediumfed Export Feeder quote the NLRS report each week.  The only difference is freight, with the NLRS quote a delivered price, and the Auctionsplus values based on farm.  For the purpose of comparison, we have added 10¢ to the Auctionsplus price to equate for freight to the feedlot.

Interestingly, the Auctionsplus prices were relatively uniform in ¢/kg lwt terms, with most of the cattle sold on NSW South West slopes.  The late July value at around 350¢/kg lwt on farm was cheaper than August, when prices rallied to 360-365¢.  September and early October values were basically around 360¢, with the one late October sale making 335¢/kg lwt.

The Auctionsplus sale was held just before the reasonable reflection of normal seasonality in the feeder cattle market (figure 1).

On average Feeder prices gain 5.5% between July and the September peak, before losing 4.5% through October. The peak forward Auctionsplus forward price for August/September was 4% higher than the late July price, while the late October low was 8% off the peak. 

What does this mean?

Whether the forward contract prices are good value relative to the current record values of 375¢/kg lwt depend on your view as to whether last week’s jump has taken us to the peak, or whether we will see a traditional August rally to a September peak.

The late October sale looks to be a little cheap even though it is above last year’s feeder price peak.  But having said that, feeder cattle prices have shown plenty of volatility this year, and there have been plenty of years when we have seen feeder prices fall in excess of 10%.  Recently we have been comparing this season to 2005 in terms of price movement, and figure 2 shows that 2005, along with 2006 were years of heavy price declines, which would make an 8% discount to the peak price looks attractive. 

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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