Feedlot outlook strong despite headwinds

Feedlot outlook strong despite headwinds

Beef
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Grainfed as a percentage of national slaughter to reach record levels

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DESPITE rising livestock costs, the highest feedstuff prices the lotfeeding sector has seen and storm clouds over global trade, the number of cattle on feed is expected to remain at an historically high level throughout 2020.

The latest projections from Meat & Livestock Australia say grainfed cattle as a percentage of national slaughter should reach record levels this year.

Processor profitability in particular will depend heavily on the lotfeeding sector.

ALSO READ: Rain to dictate cattle market story in 2020

Feedlot industry leaders say 2020, despite the significant challenges looming, will cement the sector's vital role in the wider beef industry.

Australian Lot Feeders' Association president Bryce Camm said so many brands and supply chains were now reliant on the grainfed sector to deliver a high value product all year round, regardless of the variable climate and trying seasonal conditions which were always a factor in Australia's cattle business.

"In a constrained cattle supply environment, which all indicators point to now, the grain feeding model is the fastest way to get kilos of beef onto carcasses," he said.

"It's an accelerating link. The volume of cattle that have come through lotfeeding in the past two years, driven by both season and economics, has changed Australia's industry.

"The lotfeeding opportunity has been opened to a wider array of producers who were not before utilising the market and that will continue this year."

Feeder buyers have provided the main support for the young cattle market for the past year, operating at an average premium of 55 cents per kilogram carcase weight to resotckers and 45c to processors, according to MLA data.

As young cattle prices in saleyards are pushed up with rain, the question of whether there is any more room for lifts in feeder prices has become pertinent.

Mecardo market analyst Angus Brown's latest cattle market report said lotfeeder margins had tightened with rising feed costs, limiting feeder upside.

If the Eastern Young Cattle Indicator continues to rise, it was likely finished cattle would have to go higher too, and this could help lotfeeder margins, he said.

Mr Camm said most in the lotfeeding game were hesitant to make predictions for the rest of the year based on the first couple of weeks of trading. January was considered an anomaly for the cattle market, he said.

"The bottom line is the feedlot model is a margin-based equation and lotfeeders will only pay what they can," he said.

Outside the price of cattle, there are big challenges for the sector which could hinder the ability to sustain high numbers on feed.

"Grain, roughage, protein sources - across all feedstuffs the reality is prices will be high until at least the end of the year, when hopefully a successful winter harvest eases the pressure," Mr Camm said.

"More widely, Australia is an outward trading nation for beef. From coronavirus to trade negotiations between major players, there is a lot happening in this space."

Mr Camm named post-Brexit trade arrangements with both the United Kingdom and the European Union as key developments to watch.

The China-United States deal, particularly around hormone growth promotants and the accreditation of a greater number of processing plants in the US to supply China, was also of concern to Australia, he said.

"In any commercial trade environment, volatility is used as a negotiating tactic but at the moment, it is a warranted and serious concern because these issues are distorting markets," he said.

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