It’s taken a 150c/kg flatback feeder steer price to do it, but Beef Central’s regular fortnightly grainfed trading budget has returned to positive profit territory, for the first time since early November.

Prospects for lotfeeding 100-day grainfed cattle improved again in yesterday’s trading budget, but the gains clearly come as a direct result of the big declines in feeder cattle price brought on by heavy drought-induced cattle turnoff.

In fact they offset a slight rise in feed costs brought on by a lift in domestic grain price, due to the dry start to autumn.

Using our standard set of variables (see criteria at bottom of page), our latest breakeven produced a trading profit of $4 a head on flatback steers going on feed on Queensland’s Darling Downs  yesterday, and closing-out after 105 days on August 29. That’s a $21/head improvement on a negative $17 result calculated in our last breakeven on May 1.

As recently as March 8, Beef Central’s trading budget was still showing a minus-$50 outcome on feeding 100-day cattle, but that position has gradually improved since.

The biggest driver has been the big correction seen recently in feeder cattle prices, as the impact of drought extends across large parts of Eastern Australia.

For yesterday’s regular trading budget, the flatback 450kg feeder steer buy price ex Darling Downs has been lowered another 10c/kg to 150c/kg, on the basis of the further deterioration in the cattle market. That’s back 25c/kg on our early March breakeven. This time last year, that steer was worth 190c – a 21pc decline, worth $160 a head.

Yesterday’s 150c steer price is also heavily influenced at present by the big uptake of custom feeding space (check the ALFA quarterly survey results due out today or tomorrow), due to the effects of the eastern continental drought. More custom feeding demand/occupancy means feedlot operators themselves are less active in procurement, further lowering demand for flatback feeders. Take the ‘feedlot full’ sign down, and the price of that feeder steer might easily be 10-20pc higher.

The reduction in c/kg price values today’s 450kg flatback feeder steer at $675, back another $45 on two weeks ago – easily the lowest feeder price seen in Beef Central’s regular trading budget in two years.

The feeder market peaked back in November/December 2011 at $967.50, before beginning its current longer-term downwards trend, exacerbated recently by drought. The slide means feeder steers meeting our chosen spec have now fallen 30pc in value in the past 17 months.

Ration price lifts

On the basis of recent rises in domestic grain pricing due to the dry start to Autumn, we’ve lifted yesterday’s ration cost $5/t to $300/t. That said, many lotfeeders may have grain stocks purchased leading into the harvest period, at lower rates, meaning their contracted ration price might be a little lighter.

A $300/t ration price represents a total feeding cost over 105 days of $470 on our trading steer, up $8 on May 1 budget figures. Total production cost is calculated at $1231, a $39 drop on the previous figure, due to lower feeder cost overwhelming the higher feed cost.

Cost of gain, using our chosen variables (2kg/day ADG, for 210kg gain over 105 days) is marginally higher at 224c/kg, up 4c from last time. This time last year, the cost-of-gain was 190c/kg on a $250/t ration price, about 15pc higher than today.

The variables outlined above deliver a breakeven figure in today’s budget of 349c/kg – a further 11c/kg drop on our last figure a fortnight ago, and a 51c/kg drop on a breakeven figure of 400c/kg calculated back in mid-January.

That’s easily the lowest breakeven figure produced for this dataset, using the same variables, stretching back two years. The previous low breakeven figure was a 362c/kg figure generated back in July, 2011.

Forward pricing   

Current forward public grid prices for 100-day ox from Southeast Queensland processors for September, week one, are around 350c/kg dressed, down 5c from our previous budget.

Again, the 350c/kg figure is the lowest forward price for 100-day ox seen in this report since May 2011. The current figure reflects over-production of grainfed cattle into the traditional shortfed market, largely due to the large numbers of drought-impacted cattle going on feed early this year, and now closing-out as spot market cattle in bigger numbers.

As mentioned in our intro, all that suggests a trading profit on Beef Central’s regular variables yesterday of $4. That’s slim, but a profit, nonetheless.

In some cases, producers appear to have taken the feedlot option this year primarily to ‘buy some time.’ Needing to shift cattle due to conditions, they’ve looked at the store sale price, and the risks associated with a meatworks slot that may not even include a delivery date, and have elected to put them on feed, electing to ‘work it out later.’

That achieved two things: it allowed them to move the cattle off the place, before they get too poor, which was the primary objective; and bought them some time. Time can be a valuable commodity in the current market environment.

Indicus factor

Given that many commercial yards are now feeding a mix of flatbacks and cheaper higher-Indicus cattle because of the seasonal/supply situation, some yards may be recording higher average per-head profits a little higher than today’s $4/head figure.

An aspect to consider is the fact that higher Indicus feeder cattle might be trading at 15-20/kg below yesterday’s quoted 150c/kg level for flatback steers.

Based on that feeder price, it would appear that producers in the north facing a 130c/kg liveweight sale price for Indicus feeders, are potentially better off placing those cattle on feed. Here’s some sums.

The 20c/kg discount currently evident between flatback and Indicus feeders is effectively worth $90 a head.

Given that some processors will reduce grid price on 100-day Indicus ox by 5-7c/kg dead weight off the equivalent flatback animal, their exit price is theoretically about $24 less than the equivalent flatback steer at close-out (although that’s a little simplistic, because it’s based on equivalent carcase weight at exit, whereas in reality the indicus steer might exit a little lighter). Deduct that $24 from the $90 gives a $66/head advantage, over simply selling that indicus steer as a feeder.

Given that scenario, and the relentless impact of drought, it’s little wonder that feedlots are as full as they have been since about 2006-07, and the higher incidence of custom-fed indicus-influenced cattle.

We’ll look more closely at a breakeven calculated on feedlot performance and pricing for higher indicus cattle in coming issues. There’s a lot more that could be tossed into the equation: potentially lower hospital costs with indicus, morbidity/mortality, growth rate, conversions etc.   

25c/kg spot advantage over earlier forward contracts

Looking backwards, at 100-day flatback cattle that went on feed in late January for slaughter this week, forward-contract meatworks rates then were around 375c/kg, on a break-even at the time for good cattle of about 390c, as the whole meat market started to drift. The spot market today ex southern Queensland is more like 350c/kg, meaning those forward purchased cattle killed today are 25c/kg or $90/head more expensive than today’s spot market.

One interesting development currently being observed in the market is that the forward price and the spot price for 100-day cattle are currently very similar, despite the very large numbers of cattle on feed. That’s highly unusual. It means that there is no premium being seen in the forward market, and that production cost is similar to where the spot market is.

That clearly reflects the situation where producers and lotfeeders do not currently need a ‘price incentive’ to put cattle on feed – while ever it stays dry, they will do it anyway.

But watch this space: there is a growing expectation that there will be considerable shortage of store/feeder cattle in the medium-term, which should again see forward pricing premiums restored to motivate feedlot placements.   

• 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 450kg liveweight feeder steer 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. For a more specific performance forecast on a given mob of cattle, consult with your preferred custom feeder.