Lotfeeding

Grainfed margins remain negative, but improving as feeder prices soften, trading budget shows

Jon Condon, 14/02/2024

A SOFTENING in feeder steer prices over the past week has pushed margins on 100-day grainfed cattle a little closer to breakeven – but the numbers remain mostly in the red, for the timebeing.

Beef Central’s latest grainfed trading budget calculated this morning, using our standard set of variables (see description at base of page) is based on 100-day cattle going on feed this week, and closing-out at the end of May.

The three weeks of wet weather in January and early February saw feeder prices spike sharply as supply fell short of requirements, through weather disruptions – causing some aggressive buying and catch-up among Downs feedyards.

But feeder prices started to drift off again last week, as supply lifted and conditions started to dry out. Some large Downs yards suspended quotes on feeders late last week, comfortable that they had their requirements covered for the timebeing.

Others still have active quotes in the market today, but at levels lower than last week. Roma store sale yesterday, and Dalby sale today both reinforced that trend, with feeder weight cattle (albeit reasonably light in numbers) sharply down on last week.

Just a fortnight ago, heavy feeder prices out of the paddock ex Downs peaked at 390-400c/kg, but by the beginning of this week, had consolidated back around 5-10 percent, or 20-30c/kg.

While the market is still somewhat fluid this week, prices for heavy paddock feeders of 375-395c seen only last week are now more like 350-360c. It’s worth noting, however, that rates similar to current prices were seen only three or four weeks ago, before the market really took off in late January.

The Eastern Young Cattle Indicator also reflects this trend, rising from 616c back on January 18 before peaking at 679c on 6 February – a rise of 63c or 11pc in a couple of weeks. It has since fallen again to 635c yesterday. The NLRS northern feeder steer indicator tracks a similar trend, down 25c this week to 350c/kg liveweight today (in the south, 340c today, having peaked earlier at 356c).

Ration prices

Downs feedlot ration prices remain historically high this week, at $520-$530/tonne.

Grain prices have come off somewhat since the harvest period, but current ration prices are still being affected by grain bought earlier at higher prices.

While the recent cycle is the first time in the 13 years that this occasional report has been published that ration prices have sat above $500/t for any length of time, they have actually softened somewhat from rates as high as $550/t seen earlier, when there was significant grain demand pre-harvest and conditions were dry. At one point, the Downs barley market went close to $500/t before dropping into the mid-400s during harvest.

To put the current ration price in perspective, it means an outlay of $770 on the ration cost for a typical steer being fed a 105-day program.

Cost of gain at line-ball

Based on a chosen ration price figure this week of $525/t and our feeder performance data set out below, it means cost of gain on our typical feeder steer this week is 365-370c/kg. That means there is little incentive, or disincentive, for feedlot buyers to prioritise lighter or heavier feeder cattle in procurement at present.

Breakeven 702c/kg

Based on a 350c/kg feeder steer price this week, and representative rations at $520/t, all this delivers a breakeven for steers entering Downs yards this week and closing-out 29 May of 702c/kg.

Some forward contracts on 100-day cattle for May delivery (June contracts not yet being quoted) are still being transacted at 700c/kg, Beef Central understands, but others may have now softened to 675c/kg.

Depending on the contracted finished steer price (700c or 675c/kg), that suggests a loss of between $7 and $96 a head on cattle producing an ADG of 2kg/day.

For better-performing cattle gaining at 2.2kg/day, the breakeven on cattle heading to slaughter late May reduces to 680c/kg. On a 675c/kg forward price, that represents a $21/head loss, or a $71/head profit on a 700c/kg forward contract.

Looking back just a fortnight when feeders were still making around 385c/kg, however, the breakeven figure rises to 745c/kg, meaning potential losses on contracted steers closing out mid-May of $160.

While it has no bearing on this calculation, spot market 100-day cattle in southern Queensland this week are being quoted by major export processors at (an uncompetitive) 620c/kg, suggesting those companies already have their immediate requirements for grainfeds covered and are not actively chasing extra numbers.

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 viability 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 misunderstood.

 

 

 

 

 

 

 

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