Lotfeeder margins pressure the market

Lotfeeder margins pressure the market


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Mecardo analyst, Angus Brown, looks at the pressures on the lotfeeding sector as grain prices continue to climb and feeder cattle become harder to source.

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CATTLE on feed were at a record 1.12 million at the end of June, however, the recent strong lift in grain prices means feedlot margins have been squeezed adding pressure to feeder and grain-fed cattle prices, albeit in opposite directions.

Normally when we get record numbers of cattle on feed it’s due to strong margins.

The current record number of cattle on feed is despite 10-year high grain prices.

The lack of heavier feeder cattle has seen export fed beef prices remain relatively steady in the face of rising grain prices.

The sell price of 100 day grain-fed cattle is lagging input costs, and this puts the margin for cattle put onto feed last week at negative $71/head (Figure 1).

Gross margin on contracted steers after input costs: When feedlot margins have in the past turned negative, it usually leads to a sharp decline in numbers of cattle on feed. Vertically integrated operations can wear a loss in the feedlot if it can be made up in the processing margin, but smaller feedlots will often go empty.

Gross margin on contracted steers after input costs: When feedlot margins have in the past turned negative, it usually leads to a sharp decline in numbers of cattle on feed. Vertically integrated operations can wear a loss in the feedlot if it can be made up in the processing margin, but smaller feedlots will often go empty.

Lighter feeders fed for shorter periods for the domestic market are likely to be propping up cattle on feed numbers.

Sale prices for domestic grain-fed trade steers are similar to export values in ¢/kg terms and as such these cattle will be delivering a smaller loss, if not a small profit.

What does it mean?  

Negative lotfeeder margins can’t last too long while maintaining supply of finished cattle, so something has to give.

If it’s not grain prices, then we will see pressure on grain-fed cattle prices to rise and feeder cattle prices to fall.

At this stage, with the lack of grass and therefore dearth of heavy young cattle, it looks like it might be finished cattle prices that will have to rise.

Feeder cattle prices are going to have to stay relatively strong to encourage backgrounders to put in the time, effort and feed to direct cattle to feedlot specifications.

The story Lotfeeder margins pressure the market first appeared on Farm Online.

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