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Record feeder prices push grainfed profitability well into the red

by Jon Condon, 09 December 2011

Beef Central’s key message to cattle producer readers this week is, if you’re having a Christmas drink at the pub with a lotfeeder in coming days, make sure he (or she) shouts first.

Historically high crossbred feeder steer prices ex Darling Downs reached this week have pushed profitability on grainfed 100-day cattle squarely back into the red, according to our latest breakeven calculation compiled yesterday.

After a brief passage during October when Beef Central’s fortnightly calculation flirted with profitability, yesterday’s budget based on our standard 100-day grainfed beast placed on feed yesterday and closing-out in the third week of March next year suggested a negative $40-$50 trading result.    

That has slipped from a negative $30 result in the identical calculation a fortnight ago; +$1 trading result on October 27; and a +$6.75 figure a fortnight before that. Those were the only two positive trades recorded since Beef Central started on May 11.

In the context of some of the big losses seen over the past six months on the proposition of buying, feeding and selling for the 100-day grainfed market, the latest result is still only moderately disappointing, however. In mid-year, the trading result figure was -$89.

An analysis based on yesterday’s spot market for inputs suggested a breakeven figure of 410c+/kg dressed weight, for 100-day grainfed steers ex-Darling Downs, going on feed yesterday and closing-out around March 23.

That’s up around 5c/kg from our last breakeven on November 23 – again, primarily due to much higher feeder cattle prices, which have over-ridden recent lower grain costs.

Record feeder prices

Recent rain has exacerbated supply/shortage problems for feeder cattle leading into Christmas.

For yesterday’s calculation, an additional 5c/kg liveweight has been applied to the buy price for a crossbred steer ex Darling Downs, now pencilled in at 215c/kg. A second feedlot source, Charlie Mort from Mort & Co lotfeeders in Toowoomba, has confirmed that as an indicative price based on yesterday’s market.

Yesterday’s NLRS daily indicators had a national feeder steer indicator price (not specifically crossbred, ex downs) at 220.7c.

Records show ‘patches’ of $215c being paid for crossbred feeder steers earlier this year by lotfeeders, but it certainly was not across the board. Looking back in history, short passages in 2006 and 2001 were contenders, but under highly unusual conditions.

In September, 2001, when the A$ was worth considerably less, the Queensland Cattle Market Index briefly reached 220c (feeder steer price did not quite reach that level), before collapsing to 129c just nine months later after the discovery of BSE in Japan. It’s catastrophic events like that that make people wonder why they engage in the cattle industry at all.  

The latest 5c/kg rise in feeder price comes on top of a 10c/kg rise in buy price applied a fortnight ago – a lift seen even before the arrival of recent rain events.

To put today’s 215c figure into some perspective, it values a 450kg feeder steer at $970, before feeding even commences. Back in July, that same beast was valued in Beef Central’s breakeven at just $787 – a split worth $177.

Putting it another way, a 10,000 head capacity feedlot with another $180/head tied up in feeder purchase cost is carrying another $2 million in inventory cost to fill their yard than they did in July.  

The rise is attributable to general shortage of suitable feeder cattle at this time of year, as well as some nervousness/aggression in the market leading into the Christmas period, and the forecast for a wet summer when feeders could get particularly scarce. Lotfeeders don’t want to miss cattle, leading to a little stockpiling going on, particularly in the face of a couple of improved trading months earlier.

Finished ration price in yesterday’s profitability calculation remains the same as last time at $250/t.

Seasonally, when the headers are in the paddock is normally the low-point for price for the year, because from a grain producer’s perspective, selling off the header has the added attraction of not having to ‘shift the grain twice.’ Once it goes into the silo, growers tend to be more reluctant, because it will cost them another $10-$15/t to take it out. That takes a $200/t price out to $210 or $215 for the same net return.

Total production cost yesterday was calculated at $1454/beast, a $24 rise on a $1430 figure recorded a fortnight ago, driven largely by the 5c/kg rise in feeder steer price. That’s based on flatback feeder steer purchase plus typical feeding program, and a 1pc mortality rate in the yard.

Having only a modest impact on change in today’s outcome is the over-the-hooks grainfed forward sale price for March, week-three, which has lifted 5c/kg dressed to 400c, from 395c/kg last time.

The recent US5c rise in the value of the Australian dollar, from US97s a fortnight ago to US102s in trading this week, has not yet been reflected in forward prices. That change, alone is costing processors around 25c/kg, meaning volatility of currency is continuing to be a huge factor for export processors. 

 

Grainfed spot price

Given yesterday’s processor grids for spot market 100-day grainfed ox among southeast Queensland plants, cattle bought forward back in mid-August in the low 380s, on a breakeven of 377c, are delivering a loss to processors of around $10/head.

That’s a big turnaround on figures calculated a fortnight ago when early August forward-bought cattle were delivering profits reasonably close to $100/head, according to Beef Central’s calculations.

While Beef Central’s model is standardised to maintain consistency throughout the year, some stakeholders might argue that the current budget could be adjusted for anticipated better cattle performance heading into summer.

Many feedlot rations are now moving on to predominantly white grains, and recording lower levels of respiratory disease. In some lots, that might be worth 5c/kg, meaning that if it was applied, that would lower the close-out breakeven figure to closer to 400c.

Countering that a little, however, would be wet weather over the past two weeks – not ideal for starter cattle.

 

  • Beef Central's regular 100-day grainfed breakeven scenario is based on a representative standard set of production variables, ex Darling Downs. They include a 356kg dressed weight; average daily gain of 2kg; consumption 15kg and a feed conversion ratio of 7.5:1 (as fed); $25 freight; interest component. It is important to note, however, that variations exist across production models (feed conversion, daily gain, mortality, morbidity, carcase specification); from feedlot to feedlot; and between mobs of cattle. For a more specific performance forecast on a given mob of cattle, consult with your preferred custom feeder.

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