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Grainfed prospects taking a hit

23 April 2020

Key points:

  • the Queensland over-the-hook (OTH) 100-day grainfed steer indicator continues to slide
  • demand from high-end foodservice outlets for Australian grainfed beef stalls
  • a disconnect is emerging at a domestic level, between feeder and grain-finished cattle prices.

In recent years, feedlots have enjoyed ample numbers of cattle on feed. However, the current and forecast supply of suitable cattle – the impact of elevated feeder prices and COVID-19 led pressure on demand - will continue to be a challenge in the foreseeable future. 

Cattle prices across the eastern states have rallied since January, on the back of widespread rainfall and reinvigorated restocker demand helping to push store prices to record levels. A bullish three-month seasonal outlook will be providing additional short-term support.

National Livestock Reporting Service (NLRS) eastern states feeder paddock prices for the week were mostly steady on the week prior but remain well above year-ago levels.

  • The domestic paddock feeder steer indicator, up 71¢ on year ago levels, at 354¢/kg lwt,
  • The domestic paddock feeder heifer indicator, up 65¢ on year ago levels to 328¢/kg lwt

Both indicators are still short of the levels achieved in 2016. Feeder requirements coming from established backgrounding programs will have supported supply to this point. However, the challenge for feedlots will be sourcing light weight cattle to replace backgrounders.  

Grainfed turnoff has remained stable in recent months, driven by record numbers on feed in the December 2019 quarter, but it’s inevitable fewer grainfed cattle will present in the second half of the year. Restocker pressure (high feeder prices) and the impact of COVID-19 on high-end foodservice demand (declining finished cattle prices), in particular longfed programs, will pressure feedlot inventory numbers. Movements in grain prices will also challenge feedlot inputs, as they remain at historically high levels. Compared to year ago levels, feed wheat delivered Darling Downs has increased 21% to $485/tonne.

Finished grainfed cattle prices have seen a sharp adjustment in recent weeks, following the rally earlier in the year and have been unable to keep pace with the strength of the feeder cattle market. The Queensland over-the-hook (OTH) 100-day grainfed steer indicator is currently reported at 578¢/kg carcase weight (cwt), back in line with where it opened 2020 and back 11% from its peak in early March. Critically, the ongoing uncertainty in global markets, caused by the impact of COVID-19, is likely to see even greater downwards pressure on grainfed prices in the weeks ahead, due to its prevalence through foodservice outlets. 

The foodservice sector has been an unfortunate spectator, as countrywide shutdowns in many of Australia’s key grainfed markets (including the domestic market) have placed the sector under a huge amount of pressure. Redirecting product into the domestic retail space may provide some support for some cuts, as will Australia’s strong retail footprint in markets such as Japan and Korea. However, longfed higher-value loin cuts will be under significant pressure in the current climate. 

Looking ahead, a similar decline for cattle on feed numbers seen in 2016 would see occupancy levels fall below one million head. However, the potential implications of COVID-19, adds even further pressure to the grainfed beef supply chain, on top of domestic supply limitations. Critically, the speed and scale of a return of foodservice demand remains an unknown both domestically and in Australia’s key export markets.

© Meat & Livestock Australia Limited, 2020