Profitability continued to improve in Beef Central’s latest fortnightly feedlot trading budget calculated yesterday, which finished ‘all-square’ for our feeder steer entering the feedyard now and closing-out after 105 days in January, week one.

Reflecting the ongoing tough conditions in the grainfed sector, it’s the first time the calculation has not been in negative territory since a couple of modestly positive trades back in April/May.

The figures have steadily improved over Beef Central’s past three budget calculations, from a minus-$41 position in the exercise published a month ago (August 23), to a minus-$21 result a fortnight ago, before hitting breakeven today.

For yesterday’s trading budget, we’ve kept the feeder steer buy price at 190c/kg, based on a flatback crossbred steer, ex-Darling Downs.

While higher indicus content steers suited to some shortfed programs are certainly changing hands currently at 175-180c/kg, crossbred flatbacks are more commonly still trading this week in the 185-195c bracket.

With indications of some big numbers of higher grade Indicus feeder steers coming forward out of the north at present, it raises the question, can a heavier flow of feeder steers and consequent price pressure in one category affect price in another category, i.e. flatbacks?

The answer is yes, but with some lag effect, a reliable trading contact says. That’s because some operators willing to buy both will elect not to bid on the relatively more expensive crossbreds at that time, to concentrate on the better value, more abundant higher grade cattle. That, in turn, means less competition on the crossbred feeders, and generally what happens, their price drops, after a little lag, to a point where the buyers of both types again picks up interest.  

Current feeder steer prices for all descriptions remain delicately poised, however, and much will depend on weather patterns over the next month to six weeks.

It appears the worst of the seasonal conditions are in areas of northern NSW still coming out of winter, which badly need rainfall to stimulate new pasture growth. North of the border, while conditions are certainly drying off, much of Queensland still has a bulk of dry feed at its disposal, meaning producers are less pressured in terms of being likely to have to sell cattle.

It’s the main reason why feeder steer prices have not come back further than they have so far this spring. Parts of NSW have had 10-20mm over the past few days, but not enough to instil any great confidence yet.

The 190c/kg value chosen as our representative feeder price for this week’s trading budget values him at $855, down $22 on a month ago, and a considerable distance from our January 9 year-high steer value of $967.

Influenced by current grain prices and stocks on hand, finished ration price applied in today’s calculation was lowered by $10/t to $275/t. Downs lotfeeders are currently quoting ration prices anywhere from $270/t to +$300/t, depending on inputs, stock-at-hand and earlier grain buying strategies.

The current finished ration price represents a total feeding cost over 105 days of $430 on our example steer, and a total production cost calculated at $1377, back $15 on a fortnight ago.

Cost of gain in the southeast Queensland market, using our chosen variables (210kg gain over 105 days) has softened from 213c/kg a fortnight ago to 205c/kg yesterday.

That COG figure is still above the cost of the cattle, meaning feeders are keen to buy feeders that closely match weight specs, to avoid having to feed-on beyond the 100-day requirement. At other times of year when COG is below the cost of the cattle, feeders can be much more comfortable putting 360kg cattle on feed, perhaps for 130 days, to maximise the advantage, especially with the use of back-to-back HGPs.

To illustrate this, it’s worth looking back at previous breakevens. In January, for example, COG was worth only 187c/kg, compared with a feeder value at 215c/kg. In the US industry, however, where corn is (normally) abundant and (normally) relatively cheap, COG is typically lower than feeder price on a consistent basis.

All the above variables deliver a current breakeven yesterday of 390c/kg dressed weight on a 100-day feeding exercise, down from 395c/kg a fortnight ago, and 402c/kg a fortnight before that.

Current public grid prices from Southeast Queensland processors for January, week one, are around 390c/kg, delivering a ‘line ball’ trading budget outcome this week.

Apply typical meatworks grid downgrades on shortfed cattle, and that budget could still easily be in negative $10-$15/head territory, however.

While there was a rally above US105c early this week, if the A$ was to continue its earlier softening trend into the 102s or less in coming weeks, some market observers see a prospect for a +400c/kg forward price for shortfed cattle ahead, particularly if there is renewed strengthening in the US grinding beef market.

Looking back…

In the equivalent Beef Central trading budget from this time last year, the breakeven figure was 386c, based on a feeder steer price of 190c, still rebounding out of winter lows, before heading towards 215c around December/January. Ration price a year ago was $265. Forward price was identical at 386c, suggesting another ‘line ball’ proposition, the same as today’s exercise. Currency value this time last year was around 103s, before dropping into the high 90s a week later.

Spot market position

Contracts on cattle exiting the feedlot today, and bought forward in mid-June were around 375c. Breakeven on those cattle was around 386c, which is close to where the spot market is today, subject to type and timing of delivery. That means processors are probably in the money to the tune of 10c/kg on those forward-bought cattle, worth about $35/head.

Overseas comparisons

Given the current relatively stronger position in grainfed profitability in Australia, it’s worth pausing for a moment to examine current lotfeeding propositions in other parts of the world.

US figures produced yesterday showed that placing cattle on feed now is currently a minus-A$53/head proposition on a typical 150-day US feeding program, while forward-bought cattle closing out yesterday were minus-A$28.   

It was a similar story in Brazil, where market analysts last week said the rapid rise in grain price has pushed grainfed production costs higher, with the profit equation heading into negative territory. One Brazilian analyst’s feeding budget calculated last week based on a 450kg steer, 70 days in the feedlot at a diet cost of BR400 Real (A$189) produced a net loss of BR80 (A$38) per fed animal. Extend that to an equivalent Australian 100-day program and the loss would be greater.

With expectations for high grain prices at least until the South American harvest at the end of first quarter of 2013, the Brazilian analyst was advising cattle producers to finish steers on grass.

“Though it will take more time to get to slaughter weight, costs will be substantially lower,” he told the market.

• 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; ADG of 2kg; consumption 15kg and a NFE ratio of 7.5:1 (as fed); $25 freight; typical implant program; interest component. 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. For a more specific performance forecast on a given mob of cattle, consult with your preferred custom feeder.