5. Australian cattle industry projections - feedlot activity
The outlook for the Australian lot feeding sector remains tough heading into 2012. On the input side of the equation, the historically high cost of suitable cattle, with competition fierce between all buying sectors for young cattle, provides an ongoing restraint to throughput. In 2011, producers were able to outbid lot feeders for suitable lines, most with additional feed – a situation that could be replicated in 2012.
In 2011, feeder cattle prices averaged 6-13% higher than in 2010, with some categories registering their highest calendar year average on record. In contrast, fed (or finished) cattle prices (100 days) averaged 5.5% higher for the year, while grain prices were largely steady on a calendar year basis.
However, some welcome news for lot feeders is the forecast abundant supply of feed grain heading into 2012, with prices finishing 2011 below the corresponding period in 2010. With two consecutive harvests delivering higher than expected feed grain volumes (mostly due to rain close to harvest), prices have contracted, which should help to partially offset the higher cattle costs.
Additionally, the trend towards shorter feeding regimes is expected to continue, as trading conditions remain tough to the traditional North Asian markets. Indeed, one of the major constraints upon the grain feeding sector has been the poor trading conditions for grainfed beef to export markets, accentuated by a rising volume of very good quality grass-fed beef being produced. As such, while costs of producing grainfed beef have risen; the returns have been subdued from markets that traditionally attract high quality product.
There were 713,728 cattle on feed at the end of September 2011, according to the latest quarterly data from the Australian Lot Feeders Association (ALFA) and MLA survey, down 7% on a year earlier and 24% below the peak in June 2006. Given the anticipated tough prospects for the Australian lot feeding sector in 2012, numbers on feed could be expected to remain below 800,000 head.
For any substantial increase in numbers on feed in 2012, the sector would either need to see a decline in cattle prices, assuming feed grain prices stay lower, or an improvement in returns for high quality grainfed beef, especially to Japan. Unfortunately for lot feeders, both of these scenarios seem unlikely, with demand and prices for young cattle set to remain high, as the outlook to Japan and Korea is expected to be tough in 2012.
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