FEEDER cattle prices continue to head south at a rapid – some might say alarming – rate, buffeted by a series of headwinds created both within, and outside Australia.

While it had started a little earlier, the trend has become much more extreme since the end of June.

The NLRS graph published here displays the past 12 months’ price history for feeder steers (feedlot buyers only) operating through NLRS-reported saleyards.

While the drop is perhaps amplified by the fact that some purchases in this category are domestic and trading cattle bought at higher c/kg prices, instead of heading direct-to-feedlot, it still captures the extent of the current price movement clearly:

• As of yesterday, saleyards-bought feeders have fallen below 500c/kg liveweight for the first time in the past 12 months
• Yesterday’s NLRS feeder price, reported at 499c/kg, has fallen off a cliff over the past month, dropping 55c/kg or 10pc since 20 June
• The market was at record highs around 580c/kg as recently as February, representing an 80c/kg or 14pc decline since then.

While paddock sales constitute a much larger proportion of feedlot procurement than saleyards, a similar trend is evident in this channel. NLRS no longer reports on paddock feeder sales, because of lack of support from participants in the market, but conversations with large grainfed supply chains this morning provided some clear indications of this.

Heavy flatback feeder steers 400-450kg in the paddock were still making 525c/kg in the southern Queensland market as recently as a month ago, but were quoted to Beef Central this morning at anywhere from 475c to 500c/kg, with most trades in the 490-500c/kg range. That’s a drop of 5-10pc, depending on where you finish.

At their peak back in March, heavy flatback feeders in the paddock got to 575-580c/kg.

Argus’s weekly report for feeders (providing price signals for StoneX’s feeder steer Swaps price hedging product) for 30 June was still quoting 525c for Downs heavy feeders, while two weeks later (14 June) the quote had slipped to 493c/kg, with a spread from 477c to 500c. The next weekly report is due tomorrow, but it’s likely to be lower again, Beef Central was told.

A number of factors appear to be behind the rise in feeder numbers now finding their way onto the market:

• The late-breaking, but severe winter has pushed cattle to market as country has frosted-off badly over the past month. July is typically a low point in the yearly price cycle for this reason.
• Some feedlots have stayed out of the market because of a backlog in processing finished cattle, as processors push back kill dates due to labour shortages and logistics problems.
• The rapid slow-down in live export operations in recent months is also pushing some more northern young cattle back into the domestic system
• Delayed sales deferred by producers from June into July for taxation management purposes

Another factor that has emerged more recently is the underlying sense of unease among some beef producers over a potential FMD incursion into Australia (see yesterday’s weekly kill report).

“There are clear signs of some producers taking a hedge, by selling some cattle now, rather than waiting until the disease is detected on our shores when prices would collapse,” one grainfed supply chain contact said.

“There’s a new degree of uncertainty in the market. It’s a bit like the stock market this year – earnings in many stocks are still robust, but the market has still come back 20-25pc. That’s what uncertainty will do – and it’s being reflected currently in slightly increased selling among cattle producers, and slightly decreased demand among lotfeeders, over the risk of FMD.

“FMD has simply magnified the effect, over and above the normal seasonal low.”

Lower ration costs yet to arrive

While feedgrain prices have dropped drastically recently, many Darling Downs feedlots apparently still have relatively expensive grain on hand (bought earlier) that they have to ‘eat their way through’ first, before those prices changes are reflected in lower ration costs.

Finished ration prices ex Downs feedlots are in many cases dearer today, that what they were two months ago. Quotes obtained this morning have mixed ration in downs feedlots at anywhere from $450/t to $500/t, reflecting earlier higher-priced grain. Based on today’s spot grain price, that may come back to low 400s.

Quotes this week for wheat and barley ex Downs are in the low 400s, having gotten to 500c/kg at their peak earlier.

Current cost-of-gain for a downs lotfeeder, at a 450c/kg finished ration price, is around 330c/kg on a 100-day steer, reflecting the residual high price of grain bought earlier. Feedlots with a current ration worth 500c/kg are on a 375c/kg cost-of-gain at present.

That relatively high ration price is also contributing to the downwards pressure on feeder prices, as well as putting downwards pressure on grain price, Beef Central was told.

Forward grainfed cattle pricing

Forward pricing on finished grainfed 100-day ox have shown a price correction more or less in line with recent feeder price movements.

Competitive forward quotes from processors in southern Queensland this week (note: some operators are not offering quotes this week, due to ample supply) are back 40-50c/kg carcase weight, to mid 800s (c/kg carcase weight), after getting close to 900c/kg at their peak a few months ago. Most of that deterioration has happened in the past month.

So where do feeder prices go from here? Will they begin to recover heading into spring, as they normally do, or will the more unusual market forces being seen this year over-ride that?

Here’s a few factors to consider:

• Australian grainfed exports remain under heavy pressure from the United States, which remains in the middle of a massive herd reduction caused by drought. In May, the US exported close to double the volume of beef that Australia did, for that reason.
• The current intense community focus on FMD in the media, social media and other channels will eventually die down, assuming the disease does not in fact find its way to our shores.
• The A$ remains at three-year lows, helping incentivise overseas meat buyers looking to buy Australian beef in US$.
• New-season grain is still three months away, but its reasonable to assume grain prices will remain low through to November harvest.

Some stakeholders in the grainfed trade think the feeder steer market is now approaching the low-point in the cycle, any may start to recover heading into August-September.