The subscriber in question is from Jingellic, and has 250kg steer which are normally grown out to feeders, and sold in November. The record 700-800¢/kg lwt money on offer for weaner steers is very tempting, giving a $/hd price now which is well above feeder prices prior to the second half of 2021.
Historically the decision to grow out to feeders was easy. The weaner price rarely sat much more than a 10% premium to feeders, so turning spring grass into extra kilograms was an easy decision. Now the feeder discount is in the order of 200¢, but even then it offers a margin on growing out steers of $400+ per head, which is historically very good, and the target for this particular subscriber.
Essentially, the price of feeders has to hold in the 520-550¢/kg lwt range to hit the target margin. Figure 1 shows the feeder price has trended sideways since November 2021. There is even a hint of a downward trend, but we know fundamentals remain strong.
Back in late March we looked at what could go wrong with the feeder cattle market (view article), with the conclusion that upside was limited, but so too was the downside. On reflection, that has been right since that time, as shown in figure 1.
The main movement in recent times which might impact the market has been a 50¢ decline in the 90CL Frozen Cow export price. Lower export beef prices will eventually flow through to feeder prices, which is somewhat of a concern, if the trend continues.
Additionally, grain prices have rallied since March. Feed grain is now costing $450-480/t, that’s $250 more than harvest, and will be pressuring lotfeeder margins.
The back of the envelope figures put lotfeeders roughly breaking even at current prices before overheads. It would take a $100/hd move lower in feeder prices to get back to average.
Additionally, it is winter, and the supply of finished cattle is at its’ lowest, so there could be some downside in heavy grainfed cattle, further pressuring lotfeeder margins and feeder prices.
What does it mean?
Feeder upside is limited, without an increase in beef exports prices, or a fall in grain prices. Downside is significant, hence our expected spring feeder value is 500¢/kg lwt. Not disastrous by any means, but it provides a margin lower than the target.
A fall to the worst case feeder price, of 450¢ (figure 2), is unlikely, but possible, with a dry spring, and the possibility of other fundamentals continuing to move against the feeder price.
- Weaner prices are at record highs, and feeders have weakened a little.
- At current rates there is still good money in growing weaners out to feeders.
- With weakening fundamentals, feeder prices are likely to be lower in the spring.
Click on figure to expand
Click on figure to expand
Data sources: MLA, Mecardo