FEED GRAIN is cheaper this year than it was this time last year, which should make the lamb feeding equation more attractive. However, we know that margins on lotfed lambs don't just depend on the price of feed, buy and sell prices also come into it.
It's hard to believe feed grain prices could have come off $100, and still be at $350/t (Figure 1). New crop prices are a little cheaper than old crop, but only in Victoria. The northern demand pull has Riverina prices at similar levels to old crop.
If you work on a lamb eating 100kgs of grain to put on 20kgs liveweight, this year lamb feeders will be able to do it around $10 cheaper.
Assuming a cost of feed of $40 per head, the forward prices for November at 700/kg cwt are likely to mean feeding for nothing. That's if store lambs can be sold for $120/head now.
If prices hold above 750, feeding starts to become more attractive, especially for home grown lambs, where the added values won't be eaten up by freight and selling costs.
There will be decisions on whether to sell lamb as stores, or grow out to finished lambs all through the spring. As such, calculations on margins will be constant.
There is more upside than downside, but the probability of prices being at the lower end of the range is stronger than the higher end.
What does this mean?
The lamb feeding equation doesn't look great at the moment, but this is more due to cheaper feed, in the form of grass, being available in the south. This is propping up restocker values to the point where lotfeeders need stronger than forward prices to make it work.
As we move through the season, and grass supply tightens, restocker lamb prices are likely to ease.
Either restocker lamb prices will ease, or forward finished cattle prices will have to rise, as better expected margins will be required to see lambs finished.