BIG declines in processor offers in forward pricing on grainfed export ox have contributed strongly to results in Beef Central’s latest 100-day grainfed trading budget calculated this morning.

The forecast trading result for feeder steers entering a typical Downs feedlot today, and exiting after 105 days on June 1 has deteriorated further since our last breakeven calculated on November 25.

The result this time is a projected loss of $71, down from a figure of minus $59 back in late November, and heading towards the worst results we have recorded in this data-set stretching back almost five years.

All the three key variables have displayed movement since our previous calculation.

Feeder steer price for our typical flatback feeder steer 450kg liveweight ex Darling Downs (see full list of variables at bottom of this page) has eased from an all-time high of 330c in late November’s report to 320c/kg liveweight today.

While we think 320c is a realistic and representative indicator in the current market, the overall shortage of heavy feeders across Eastern Australia means some market participants may well be paying as much as 10c/kg above that to secure feeders.

Since our previous November trading budget report, feeders firmed on earlier levels, especially around early January when the trade was just getting back on its feet after the Christmas break. Trades may have been 5-10c higher than today’s quote back then, but have since eased.

Attention will focus in coming days on the ALFA/MLA quarterly feedlot survey for the December quarter. Market watchers suggest it is likely to show a modest decline on September’s figures, but since then, many commercial feedyards (at least among traders, as opposed to those with long-term consistent contracts) have likely seen their numbers on feed decline 10-15 percent.

Beef Central is also told that the drought factor is now largely gone from feedlot inventories. That means (and anecdotally it appears to be the case, based on informal discussions with Downs lotfeeders) the balance between custom-feeding numbers and feedlot owned cattle has changed markedly, with much fewer custom-fed cattle now on the books.

Pricing today’s steer at 320c/kg live means his total purchase cost falls from $1485 last time to $1440, however it should be pointed out that a lot of yards presently may be feeding cattle somewhat lighter than our prescribed 450kg induction weight – perhaps 400-420kg.

This time a year ago, the feeder market was on the move, shifting from 235c in mid-January to 260c in late February. That suggests a rise of around 80c/kg since then. Worth keeping in mind is the fact that our feeder steer only hit the 300c mark for the first time in our August 27 budget last year.

Ration price falls to $320/t

For this first trading budget for 2016, we’ve lowered our ration price to $320/t, a $30/t decline from our previous late-November calculation. There’s a widely held belief that that price will continue to decline, on the strength of two factors:

• Lower grain prices since the last harvest period (barley downs currently around $240-$250, for example), and
• Some recognition (perhaps modest at this stage) that feedlots are no longer operating at capacity due to drought, and may have to start adjusting their margins in order to retain and capture business, to keep pens closer to full. That was a considerable factor in feedlot ration pricing over the past two very dry years.

Nevertheless, today’s quoted ration price is still well off the near record highs seen back in July last year, when ration was quoted at $385/t – representing a $65/t slide since.

That delivers a cost of gain in today’s calculation of 239c/kg, down from 260c/kg last time, providing some relief.

All the above variables add up to a total production cost of $2047. While that has eased a little ($2140 in late November) it still remains very high by historical standards.

Combining the above inputs, it delivers a breakeven in today’s budget of 580c – 27c below the record breakeven figure recorded in November of 607c.

Forward slaughter price falls sharply to 560c

The big impact on the trading budget this time around is forward pricing from competitive SEQ grainfed processors for early June delivery, currently at around 560c ( a few bids evident a little above and below that figure). That’s down from 590c/kg in November and a record high of 600c earlier, but international meat market conditions have deteriorated significantly since then, and the A$ has risen a couple of cents, US.

That compares with a spot market today for 100-day grainfeds of 530-540c/kg. On the strength of that, it appears some grainfed processors are attempting to subsidise their forward-bought cattle with discounted spot cattle, in a tough meat market environment.

Backlog of product in cold storage, combined with flat international and domestic meat markets and larger volumes of cheap Brazilian beef flowing into markets like China, are all having an impact.

As mentioned in our intro, all that produces a trading result based on the above variables of minus-$71 – heading towards the worst losses we’ve seen in this five-year reporting sequence. The massive price correction seen in slaughter markets has effectively overwhelmed a store/feeder market that continues to hold up relatively strongly, driven by one thing – tightness of supply.

Back on October 15, we were still reporting a positive trade of $35 a head.  But a lot of water has passed under the bridge since then.

Line ball on earlier forward purchased grainfeds

Looking back at 100-day cattle that went onto feed in October for slaughter this week, they were being contracted at around 580c-590c/kg, compared with a spot market today worth 530c. It means processors are at least 50c/kg worse-off on those cattle they bought forward back in October, costing them around $150 on a generic 100-day product.

• Beef Central’s regular 100-day grainfed breakeven scenario is based on a standard set of representative production variables, ex Darling Downs. It is built on a feeder steer of 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. 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. Equally, there can be considerable variation at any given time in ration costs charged by different custom-feed service feedlots. Click here to view an earlier article on this topic. For a more specific performance assessment on a given mob of cattle, consult with your preferred custom feeder.