Less numbers on feed but profit margin squeeze eases

Grainfed product has also bucked the trend of an overall decline in the value of Australian beef exports for the March quarter by lifting 3 per cent year-on-year, assisted by the large December production.

Feedlots nationwide are operating at 75pc utilisation, which is considered very reasonable against the high livestock costs and given capacity itself has increased by 73,000 head since this time last year.

The latest production figures from the Australian Lot Feeders’ Association show 914,902 head were on feed for the three months to March, a decline of  8.3pc, or 82,862 head.

The biggest decrease was in NSW but all states, apart from Western Australia, saw drops.

With paddock purchased feeder steer prices averaging 323.13 cents per kilogram liveweight, an increase of 32pc year-on-year, the decline was expected, according to ALFA president and central NSW feedlotter Tess Herbert.

To a large extent, those hefty prices were offset by lower fodder and wheat prices, she said.

In the Southern Queensland feedlotting hotspot, fodder prices declined 22pc year-on-year and wheat eased 15pc.

Feed prices had been low for some time, according to Ms Herbert said.

That has clearly been a saving grace for an industry where margins are notoriously tight as competition for fewer available cattle intensified.

Ms Herbert said there was now a slight bit of relief following extremely hard margins at the end of 2015.

Restocker competition, particularly in areas where rain arrived this month, was still stiff but it was expected some levelling out would be seen going into winter, Ms Herbert said.

“The restocker competition has been an interesting variable - the demand is obviously very strong but it’s really down to how much they can finance,” she said.

“The utilisation percentage has dropped (from 81pc in December) on account of the high cattle turnoff last year.

“However, some custom fed yards aren’t nearly as full - this tends to be first to go when margins are tight.”

Elders managing director Mark Allison said 12 months ago Killara feedlot near Quirindi was running about 91pc capacity, while this year because of the higher cost of sourcing cattle for its own meat business and contract feeding programs, Killara is back to around 80 to 82pc.

The reduced numbers were enabling maintenance and upkeep projects to go ahead, but the challenge was to ‘find new ways ways to optimise efficiency and returns’ as cattle get harder to source and more expensive.

March numbers on feed were still well above the five-year average of 800,000 head, Meat and Livestock Australia manager of market information Ben Thomas pointed out.

“Lotfeeders remain a significant part of the market but if the recent rainfall that caused a market spike two weeks ago continues, the restockers will create strong competition for the inevitable fewer cattle on the market,” he said.

Whether feeder steer prices continue to push upwards depends heavily on whether the optimistic three month rainfall outlook comes to fruition, Mr Thomas said.

“The cattle market had started trending downwards in March but that quickly turned around two weeks ago on the back of widespread rainfall,” he said.

Meanwhile, grainfed beef exports are defying the downward trend of total export values, which for the March quarter was $1.7 billion free on board, down 17pc from the corresponding year.

Recovering US production, more competition and lower cattle numbers mean export values are expected to remain below 2015 levels for the rest of the year.

According to MLA, the value of shipments to the United States eased 36pc due to both a decline in volumes and unit prices. The indicative imported 90CL price dropped 10pc due to high supply.

However, Korea saw a 27pc increase, driven by a 63pc jump in grainfed beef, Mr Thomas said.

That was supported by less locally produced Hanwoo product and the third tariff cut in the Korea-Australia free trade agreement, he said.