Falling young cattle prices, combined with lowering grain prices have offered respite to some lotfeeders in the last couple of months. However, with the forecast rain on the way and little improvement in grain supply in the short term, there could be some interesting times ahead for cattle feeders.
Since the start of March, feeder cattle prices have experienced an easing trend, in line with the rest of the cattle market. It’s not likely that there were more feeders available, but the volume of very light cattle and domestic feeders, seems to have taken the heat out of the export feeder job.
Figure 1 shows Short fed and Medium fed export feeders have fallen 34 and 32¢ respectively since the start of February. The falls equate to around 10%, but prices remained robust in comparison to the fall in the Eastern Young Cattle Indicator (EYCI). The EYCI lost 16% over the same period but recovered strongly last week.
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The Medium Fed feeder price has moved under 300¢ for the first time since mid-2015, while the Short Fed Feeder is also at a three year low. However, neither indicators are far off critical support levels and are likely to bounce back.
Grain prices have also eased since harvest. Weakening international markets have impacted local values as SA and WA grain became uncompetitive for export and started moving east.
Apart from a bit of an abnormal one week peak, the Over the Hooks 100 day Grainfed Steer Indicator has been largely steady around 550¢/kg cwt for much of the year (Figure 2). With the lower feeder prices, and lower grain prices, margins on feeding cattle have improved since January.
Figure 3 shows Northern cattle have been turning a profit, albeit a small one after overheads in most cases. Lotfeeder margins have become ‘less negative’ in the south, although it’s likely grainfed cattle prices, which MLA don’t quote, are a bit better in the south than the Queensland quote we use here.
Key points
* Falling Feeder cattle and grain prices have improved lotfeeder margins since January.
* Lotfeeder margins remain tight but point towards support for feeder prices.
* Forecast rain is likely to see feeder prices rise, with 320¢ the short term target.
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What does this mean?
The reason we look at lotfeeder margins is to get an idea of where feeder cattle prices might head. It also gives us some direction for finished cattle prices. The current situation points towards steadying feeder prices, but combined with the rain forecast for this week, there is likely some upside, especially in the north. There is room for export feeder prices to move back above 300¢, and towards 320¢ in the short term, as all young cattle supply tightens.
For finished cattle, there is upside as well. Obviously tightening supply should see Grassfed finished cattle move towards the Grainfed steer price.
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