TL;DR:
- Recent decreases in feed wheat prices to $360/tonne, the lowest since March 2022, alongside feeder steer prices at 316 c/kg lwt, have improved margins for lot feeders.
- The Australian Lot Feeders Association reports record feedlot capacity and numbers on feed, indicating strong growth and confidence in the sector.
- The relationship between feeder cattle and feed grain prices shows a significant opportunity for the lot-feeding industry, with current trends supporting profitable margins.
As of 14 March 2024, the Australian lot-feeding industry is witnessing a significant boost in profitability margins, attributed to the recent dip in grain prices. This development comes at a time when the sector is already experiencing consistent growth, supported by robust infrastructure, expanding export markets, and a steady domestic supply chain.
The decline in feed wheat prices to $360 per tonne, a figure not seen since March 2022, combined with a slight reduction in feeder steer prices to 316 cents per kilogram live weight (lwt), has presented a favourable scenario for lot feeders. This price adjustment is particularly noteworthy, considering the recovery in feeder steer prices observed at the beginning of the year.
The Australian Lot Feeders Association’s latest quarterly survey highlights the industry’s positive trajectory, with feedlot capacity reaching a record 1.6 million head and numbers on feed peaking at 1.3 million head in the fourth quarter. This marks the fifth consecutive increase in capacity, reflecting the sector’s optimistic outlook and the re-entry of smaller lot feeders.
The pricing dynamics between feeder cattle and feed grain play a crucial role in the lot-feeding industry, with both commodities exhibiting a strong inverse relationship. This relationship is influenced by various factors, including climatic conditions that affect the supply of both cattle and grain, which are the primary inputs for lot feeders.
Historically, the peak of this inverse relationship was observed in September/October of the previous year, when wheat prices soared to $463/tonne and feeder steer prices dropped to 211¢/kg lwt, the lowest nominal price since 2011. This period coincided with the maturation of the national herd rebuild, an increase in cattle supply, and a poor harvest outlook in key agricultural regions.
However, recent trends indicate a narrowing gap between these prices, with wheat prices decreasing by 22% from last year’s peak and feeder steer prices rebounding by 53% from the previous year’s low. This shift mirrors the market dynamics post-drought, where an increase in feed grain supply and livestock market recoveries contributed to a more balanced pricing environment.
Looking ahead, the lot-feeding industry remains optimistic, with the current price trends offering lucrative opportunities for enhanced profit margins. Lot feeders are expected to capitalise on this situation by participating in longer-fed programs and seeking premiums for additional weight investments.
