IT'S been a tough year for lot feeders, particularly in the south. The latest survey from the Australian Lot Feeders Association confirms that.

Feedlot capacity for the quarter ending September, fell to 55 per cent.

But in Victoria, capacity was an all-time low of 35 per cent.

The survey found that in Victoria, with a capacity to feed 80,405 head, there were only 27,923 cattle on feed.

In NSW, with a capacity of about 390,000 head, the utilisation rate was also relatively low at 51 per cent.

High grain prices and a swing back to grass feeding were the two major reasons.

A dip in returns from the premium export markets was also unhelpful.

Southern cattle producers are well served with feedlots.

Although Victoria has only two feedlots with a capacity exceeding 10,000 head, namely Elders Charlton and ICM Peechelba, there are seven big feedlots in southern NSW with a total capacity of about 240,000 head.

Consultant and operator of the 5000-head Wahroonga feedlot at Meredith, Lachlan McKenzie, said custom lot feeding was hit the hardest by the past 12 months of high grain prices.

Wahroonga trades and finishes in cattle as well as being a custom feeder.

Mr McKenzie said most farmers who did their sums, particularly when rations rose to above $350 a tonne, found that custom and opportunity feeding just didn't add up.

"Those who continued with custom feeding were the butchers and processors who wanted to maintain a guaranteed supply of a quality product," he said.

"Most were feeding a domestic product on a short 60-day program."

But he said the tide was beginning to turn.

Mr McKenzie said there was already an increased delivering of "old" grain, particularly NSW sorghum, which resulted in some feedgrains falling to less than $300 a tonne.

He also took heart from the January barley futures at about $200 a tonne, which would equate to $240 a tonne delivered.

He also predicted fibre prices would be down, although protein would remain high.

Mr McKenzie said he was already getting enquiry from both cattle and grain producers who wanted to value-add.

"The cattle producers want to find a way to add value to their cattle, while the grain growers want to feed cattle to add value to their grain," he said.

Gina Lincoln, who runs the 35,000-head capacity ICM feedlot at Peechelba, confirms it has been a tough year, with the feedlot running at 30 per cent of capacity.

But Ms Lincoln is a little more cautious on the outlook for an uptake in feeding.

She said most of the feeding at Peechelba was still on the short-fed domestic programs.

She said she wanted to first see what happened with the forthcoming harvest.

"Perhaps then we might see processors looking at a return to a 100-day program," she said.

Ms Lincoln said the current global economic crisis was also clouding the outlook for the feedlots.

Alan Conroy who, with his brother Mick, runs the Conroy Bros feedlot at Bobinwarrah, is also cautious about the outlook, despite the drop in feedgrain prices.

Mr Conroy is also concerned about the impact of the global economic crisis.

"We are already beginning to see it hit our cattle markets," he said.

Conroy Bros specialises in finishing domestic cattle, particularly heifers.

"Heifers are 30 cents (a kilogram) cheaper than steers and they tend to fatten faster, even though they won't put on the same weight as a steer," Mr Conroy said.