Feeder Relations

Basis risk in feeder prices across the Australian States.

At Episode 3 we often get asked to analyse specific markets. In recent weeks after publishing an item on basis risk for cattle swaps we received a lot of interest in feeder steer price correlations and how price trends vary across the Australian states.

Along with the Meat & Livestock Australia (MLA) Feeder Steer indicators reported upon regularly there is also an Argus Feeder Steer Indicator that is available to market participants.

The Argus Feeder Steer indicator specifically tracks Australian northern feeder cattle, using precise cattle specifications to ensure clarity and market relevance. It includes cattle weighing between 380-480kg (liveweight – lwt), male sex, dentition of 0-2 teeth, and predominantly Flatback breeds, defined as cattle with less than 51% tropical breed content.

Prices are recorded based on cattle delivered within a 300km radius around Dalby, Queensland, directly to feedlot weighbridges, with transactions comprising a minimum volume of either 2-decks or 52-head of cattle.

In comparison, the MLA Feeder Steer indicator tracks cattle purchased specifically by lot feeders, incorporating both yearling steers weighing above 200 kg and grown steers weighing up to 600 kg liveweight. The indicator uses a seven-day rolling average price drawn from saleyard transactions across Australia.

It captures cattle across all muscle classifications, ranging from very heavy to light, and all fat scores, ensuring comprehensive representation of the feeder steer market. Prices are reported in cents per kilogram liveweight (￠/kg lwt), providing a reliable benchmark reflecting broad market trends for feeder cattle destined for grain-finishing operations.

MLA provide feeder steer prices on a national basis and prices for each Australian state so comparisons can be made as to how closely aligned the respective state markets price movements have been. Monthly price change in percentage terms can be compared between the Argus Feeder Steer Index and the MLA indicators to demonstrate how strong the correlation in price movements have been historically.

The Pearson r-squared (R2) score measures how well two things move together over time. In this case, it tells us how closely the monthly percentage price changes of the Argus Feeder Steer Indicator match those of the MLA Feeder Steer Indicator.

If R2 = 1, it means that every time the price of one indicator changes, the other changes in exactly the same way, meaning they are perfectly linked. If R2 = 0, it means that their price changes have nothing to do with each other. If R2 is between 0 and 1, it means there is some level of connection, but it may not be perfect.

For example, if the R2 score between the two indicators is 0.8471 as shown above, it means that 84.7% of the changes in the Argus indicator’s price can be explained by changes in the National Feeder Steer price. This would indicate a strong relationship. However, if the R2 score is 0.30, it means that their price changes don’t move together very consistently. In simple terms, a higher R2 means the two indicators generally follow the same market trends, while a lower R2 means these two markets behave more independently.

Given the manner in which the Argus Index is collected it would be fair to assume that the QLD MLA Feeder Steer would also be relatively closely aligned when it comes to percentage price changes over a monthly horizon. Indeed, this proves true. The QLD Feeder Steer correlation score sits at 80.7%. However, somewhat surprisingly this isn’t the highest scoring state indicator.

As shown below, since the inception of the Argus Index in October 2021 the NSW Feeder Steer indicator has shown a stronger monthly price correlation of 81.5%.

Moving further away geographically appears to impact the level of price correlation between the Argus index and the MLA state based indicators. The Victorian Feeder Steer indicator holds a correlation score of 65.2%. Meanwhile the South Australian Feeder Steer sits at 59.4%.

If ever a correlation score was able to demonstrate how the Western Australian livestock markets are removed from the Eastern states it certainly holds true when assessing the WA Feeder Steer versus the Argus index. As shown below the WA Feeder Steer appears to have no price correlation present on a monthly basis with a score of just 1.5%.

The table below provides a handy summary of the key findings of this analysis, demonstrating how closely aligned the state feeder steer markets are with the Argus Feeder Steer index, based upon monthly data from October 2021 to January 2025.