Lotfeeding

Grainfed margins remain negative, 100-day trading budget shows

Beef Central, 05/06/2024

TYPICAL feeder cattle entering an export grainfed program this week would represent an $71 a head trading loss, while better performers would be closer to break-even, Beef Central’s latest grainfed trading budget suggests.

Our latest grainfed trading budget calculated this morning, using a standard set of variables (see description at base of page) is based on heavy flatback feeder steers going on feed this week, and closing-out in mid-September after 105 days on feed in a typical Downs feedyard.

The latest result compares with our previous trading budget calculated back in February (closing out at the end of May) when a forecast loss of $96 was calculated on cattle being forward contracted as grainfed ox at 675c/kg. Forward grainfed slaughter contracts were in transition at the time, with some quotes still at 700c/kg, delivering a much kinder loss of $7.

Back in February’s report (click here to access  https://www.beefcentral.com/lotfeeding/grainfed-margins-remain-negative-but-improving-as-feeder-prices-soften-trading-budget-shows/), feeders were worth around 350-360c/kg, and finished ration prices $520-$530/t, delivering a cost of gain of 365-370c/kg and breakeven of 702c/kg.

Feeder price

For today’s budget, we have applied a heavy flatback feeder price (ex Downs) of 325c/kg. Feeder prices started the year strongly, hitting around 360c in late January before falling sharply to around 305c in March as southern conditions turned dry. Since the start of April, with further rain, feeder prices have improved and stabilised around current levels.

The view is that there will be adequate supply of feeders over the next few months, which may apply some downward pressure on prices heading into July.

Increasing numbers on feed (both the March and December quarters saw national cattle on feed hit new records), together with some flat international beef markets due to economic conditions and consumer spending has motivated processors to lower their bid prices on finished grainfed steer. Forward contracts on grainfed ox have fallen from around 700c/kg early in the year to 650-660c/kg today.

Ration prices

One lotfeeder spoken to for this report said when feedgrain prices fell sharply back in February March, many yard managers were unable to take advantage of that opportunity because they were already heavily committed, having bought quantities of grain earlier at higher prices.

He suggested traders had in fact moved on that cheap March grain, and would probably sell it on to lotfeeders later in the year, at considerable profit.

As end-users have moved back into the market, the buy-side has gone quiet again – hence the lift of around $50/t over the past three months.

Wheat ex Downs was trading this morning around $420/t, and barley much the same. Around August last year, grain prices got to (or close to) $500/t, which was one reason why feedlots were not in a position to buy in volume when prices dropped even further earlier this year.

White grains at current prices values a typical Downs feedlot’s finisher ration at around $490-$500/t, with all ration ingredients remaining high. Cottonseed continues to trade in the $500-$550 range, depending on location.

There’s certainly some variation evident in downs ration prices this week, with some still well north of $500/t in the $520/t area, and others back around $480/t, depending on performance.

Cost of gain

All that makes cost of gain on our benchmark feeder steer gaining at 2kg/day at 366c/kg.

When that’s compared with a feeder purchase price of 325c/kg this week, it explains why any premium (c/kg basis) for lighter cattle has disappeared, as it presently costs more to add weight in the yard than buying the weight on the steer.

Effectively, lotfeeders doing 100-day programs are aiming to buy feeders as close as possible to desired feedlot entry weights, rather than backgrounding them in bunks on paddocks.

Looking back at our previous grainfed trading budget in February, cost of gain and feeder purchase price were virtually the same, at 365-370c/kg. Back then it made more sense to feed-on a few lighter cattle, but not now. Even earlier, a year ago, finisher rations got to around $550/t, meaning cost of gain was closer to 400c/kg.

Breakeven 670c/kg

Based on the figures above, total production cost (feeder purchase, feeding cost plus management cost) is around $2395/head, delivering a breakeven on our feeder steer of close to 670c/kg. In our February trading budget, that breakeven figure was a lot higher at 702c, but forward contracts on grainfed were also a lot higher back then.

Forward contracts on grain-finished cattle

Competitive grainfed processors offering forward contracts on 100-day ox are this week offering around 650c/kg, meaning the above breakeven represents a 20c/kg loss, worth $71/head on a carcase 356kg in weight. At a 660c/kg forward contract which some may be accessing this week, the loss declines to around $35/head.

For better-performing feeder cattle producing average daily gains of 2.2kg instead of our standard 2kg/day, the breakeven reduces to around 650c/kg, and cost of gain reduces to 332c/kg. At that level, a fed steer is around revenue-neutral on a forward contract carcase rate of 650c/kg, and about $35 a head in front on a better processor grid offering 660c/kg.

 

About the 100-day grainfed trading budget

Beef Central’s 100-day grainfed trading budget calculation is based on a standard set of representative production variables, ex Darling Downs. The calculation is built on a feeder steer 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. The trading budget should not be interpreted as a comment on the viability of the lotfeeding sector – it is simply a gauge of the exercise of buying feeder steers, sending them to a feedlot for custom-feeding, and then selling them at the expected grid price at a processor. The opportunity costs of the exercise can often be misunderstood.

 

 

 

 

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Comments

  1. Brett Page, 05/06/2024

    Out of interest what yardage cost per day due u include in your calculations ?

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