The situation has improved, but is still far from positive in Beef Central’s latest 100-day grainfed trading budget compiled today.

While the calculation benefited from an advantageous adjustment in forward contracted finished cattle price, this was offset somewhat by higher feeder cattle and feeding costs since our previous 26 April budget.

The trading result calculated in today’s budget, for representative steers (see full description at base of page) entering the feedlot today and closing-out after 105 days on feed on September 1, is minus $74. As poor as that sounds, the figure represents a considerable improvement on our previous budget calculated three weeks ago, which forecast a record loss (for this five-year data set) of $114.

The early September close-out scheduled in today’s budget has seasonal implications for projected forward prices for grainfed slaughter, as even in a ‘normal’ turnoff year, meatworks cattle supply is getting tight by that time. In a year like this, however, after three years of declining herd numbers, it’s only likely to be that much worse.

Here’s some commentary behind today’s budget assumptions:

 

Feeder price firms to 290c

We’ve set today’s feeder steer price (450kg liveweight flatback steer, ex Darling Downs) at 290c/kg.

That’s a rise of 5c on our previous April 26 report, but in the intervening period, that price has firstly drifted lower to around 270c, before firming considerably on the back of the recent rain event across parts of Eastern Australia earlier in May.

It’s reasonably ‘abnormal’ for the feeder market to be firming heading into winter like this, but these are anything but normal times, and the over-arching tightening of supply and cattle on offer is exerting a considerable influence.

While most feedlot grids this week are around 290c for specs meeting our description, as recently as Tuesday’s Roma store sale, like feeders were making 300c home. None of that is being driven by buyer sentiment, as our material loss forecast shows, but purely by supply-side issues.

For the record, the all-time high for feeder price at 330c liveweight was recorded in late November’s report, and only hit the 300c mark for the first time in late August last year.

Even at today’s 290c, the feedlot sector remains very short on feeder cattle, feedback offered for this report shows. While Roma sale may have been stronger across the board this week, if there is a broader trend emerging, it is perhaps a strengthening in the feeder cattle and slaughter cattle markets, but some discounting being seen in backgrounder and restocker types.

This week’s feeder buy price of 290c values him at $1305, a modest rise from $1282 three weeks ago. This time last year, feeders were on the march as the overall surge in cattle pricing gained momentum, rising from 255c in late April to 270c in late May.

Many feedlots continue to accept quite broad 100-day feeder weight specifications, in some cases down to 300kg, where traditionally their minimum spec has been a 380. That’s being done for two reasons: to increase the potential cattle pool they can access; and the fact, as outlined below, that at current cost-of-gain, it is relatively cheaper to put weight on lighter feeder cattle, than pay a higher c/kg price for a heavy feeder. Some of those ‘light’ feeders may be going into a structured limit feeding program for a period, while others are going onto conventional rations, but fed for a longer term.

 

Ration price firms to $320/t on strength of surge in grain rates

Feedgrain prices have rallied dramatically, lifting around 15pc over the past month due to the continued dry weather and export demand. Barley ex Downs, for example, is quoted this week at a $255-$260 type number, whereas it was closer to $230 just a few weeks ago.

That’s led to a marginal $5/t rise in ration price in today’s budget to $320/t. But assuming that the grain price continues to move higher – or indeed even maintain its current value – that ration quote can definitely be expected to lift in coming budgets, as finished ration formulation cost better aligns with key commodities.

Today’s quoted ration price is still well off the near-record highs seen back in July last year, when ration reached $385/t – representing a $65/t slide since. Even this time last year, ration was still worth $370/t, but some of that, at least, was due to feedlots operating at near capacity due to drought.

Worth noting in coming days will be the outcomes from the March quarterly feedlot survey. Those figures are likely to be somewhat down from December quarter’s record at near one million head, but anecdotally, it appears feedlot pens are again re-filling in greater numbers, as dry conditions again bear down.

The current $290/t ration price in today’s trading budget delivers a total feeding cost of $501 ($493 last time), and a cost of gain at 238c/kg. At today’s nominated feeder steer purchase price of 290c, total production cost is $1909, +$30 on last time, but still well short of our record high of $2140 in late November.

Based on the above assumptions, it delivers a breakeven in today’s budget of 540c/kg – 8c/kg up on our previous April 26 budget. The breakeven figure this time last year was more or less identical, but it continued to rise as 2015 progressed.

 

Forward slaughter price surges again, to 520c

The single biggest impact on change in this week’s trading budget is the forward price for finished grainfed steer for early September delivery. It’s been a roller-coaster ride in terms of indicative pricing recently, collapsing 50c/kg between our trading budgets in late March and late April (550c/kg down to 500c/kg), before rallying to 520c/kg in quotes on offer today for September slaughter.

In hindsight, it appears earlier drastically-reduced forward price offers by grainfed processors around 500c were just too extreme – despite the pervading export meat trading and currency conditions at the time – and the backlash from grain feeders holding cattle, in terms of supply commitment (or more accurately, the lack of it), forced the price upwards again.

Backgrounding the rise in slaughter pricing, also, is a very significant US5c drop in the value of the A$ over the past three weeks, providing export processors with some considerable breathing space. Certainly the ‘second tier’ single-site grainfed processors currently appear to be more aggressive in the market than the ‘big three.’ Is that evidence of the ‘majors’ perhaps trying to maintain a cap on pricing? That gap between competitors is currently unusually wide, with prices around 530c at some sites, and closer to 510c at others.

Also worth looking at for a moment, is the effect that currency is having on processor profitability.

Today’s Aussie dollar valued at US73c values today’s A520c/kg grainfed steer at US380c/kg. This time last year, when the A$ was worth US78c, and our 100-day steer worth A540c/kg, it valued the steer at US421c/kg. On that basis, today’s steer in US$ terms, is 11pc cheaper than where it was last year. Profit for Australian processors last year on grainfeds was more like $160-200 a head, however.

Over the same timeframe, US cattle futures are 23 percent down today on where they were last year.

Comparing today’s improved forward slaughter price of 520c/kg with our breakeven figure of 540c, it represents a still-substantial trading loss on the steer in this budget of $74. That’s definitely an improvement on the record loss calculated three weeks ago, but still a long way from positive trade territory.

 

Spot market comparisons

Looking at grainfed cattle heading for slaughter this week, forward contracts written back in February were priced in the 560s. Compare that with the spot market this week for grainfeds in the 510s, and it means processors are currently around $100 a head worse-off, financially, on contracted cattle.

Any plant heavily exposed to forward contracts at present is bleeding profusely, and probably cannot expect to get any medical attention in the form of price relief until the back-half of the year.

It’s fair to assume that the current forward pricing offers for September delivery are designed to aid the ‘healing process’ if we can be excused for extending the medical metaphor just one step further.

In the meantime, there’s perhaps another six weeks of intensive care ahead, before tightening supply and a traditionally firming market later in the year applies some relief to the wound.

 

Beef Central’s regular 100-day grainfed breakeven scenario is based on a standard set of representative production variables, ex Darling Downs. It is built on a feeder steer of 450kg liveweight, fed 105 days; 356kg dressed weight at slaughter; ADG of 2kg; consumption 15kg/day and a NFE ratio of 7.5:1 (as fed); $25 freight; typical implant program. Bank interest is included. It is important to note that variations exist across production models (feed conversion, daily gain, mortality, morbidity, carcase specification); from feedlot to feedlot; and between mobs of cattle. Equally, there can be considerable variation at any given time in ration costs charged by different custom-feed service feedlots. Click here to view an earlier article on this topic. For a more specific performance assessment on a given mob of cattle, consult with your preferred custom feeder.