Volatility not being kind to lotfeeders

The last time we looked at lotfeeder margins was pre-COVID-19, or at least in Australia. Since then, we have seen dire predictions for cattle prices turn into bullish ones. We’ve seen feed grain prices rise, back to highs, and subsequently, fall. The extreme volatility in all aspects of the lotfeeder model shows up in margins, which still suggest young cattle prices are not sustainable, at least until new crop grain is available.

Feeding cattle can be a risky business at the best of times. But when faced with rampant restocker demand competing for cattle and uncertainty around high value beef prices at both export and domestic level, there is plenty of reason to limit numbers on feed.

In the March Cattle on Feed survey, we saw what tight supply and uncertainty had done to numbers on feed, and when we look at margins it should come as no surprise. 

Late March saw the 100 day Grainfed Over the Hooks Indicator fall sharply, with uncertainty from exporters driving prices lower. Over six weeks from the start of March to mid-April the 100 day Grainfed indicator lost 99¢, or 15%.  Despite lower feeding prices, lotfeeder margins fell to more than $200 in the negative. 

Figure 1 shows that the 100 day Grainfed indicator has recovered somewhat, but margins remain in the red. This is using a shortfed feeder price of 370¢/kg lwt, although there are plenty of reports of higher values being paid.

In southern feedlots, things have been just as bad as in the north, and are currently worse (Figure 2).  Feeder cattle prices in the south are around 400¢/kg cwt or more, so before any feed goes into cattle the cost is already $1,800 per head for a 450kg steer. Using a 100 day grainfed price of 613¢/kg cwt, at 320kgs give just $1961. After feed, the margin comes in at negative $101/head.

Figure 3 illustrates the recent and current margins situation in both northern and southern feedlots, based on the simple feeder cattle and feed in price, and grainfed cattle out price. There isn’t really any room for feeder prices to move upwards looking current margins.

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What does it mean?

There is some relief on the horizon for lotfeeders, in the form of cheaper feed grain prices. New crop feed wheat is around or under $300/t in both northern and southern markets, which will add $80-120 per head to the lotfeeding margin. New crop harvest is still six months off however, while improved feeder supply is probably four months away. It’s safe to say any increase in feeder supply will see prices ease. 

In the interim, any improvement in margins, and therefore feeder prices, will have to come from increasing grainfed cattle prices or falling old crop feed values.

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Key Points

  • Extreme volatility has been seen in lotfeeder input and output prices over the last two months.
  • Grainfed cattle prices have recovered somewhat, but lotfeeder margins remain negative.
  • The new crop harvest will provide some relief, but feeder values will come under pressure with any increase in supply.

Click on graph to expand

Click on graph to expand

Click on graph to expand

Data sources: MLA, Mecardo

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