Profitability remains tantalisingly close to breakeven in Beef Central’s latest 100-day grainfed trading budget calculated this morning.

What’s happened since our last trading budget three weeks ago is that a big rise in ration price has been counterbalanced by higher finished cattle price.

It’s been eight months since we last recorded a positive trade in this calculation, but the next one could be close at hand, judging by results today.

Today’s trading budget calculation is based on our standard set of variables (see full list at base of page), benchmarked on a typical flatback 450kg feeder steer going on feed on the Darling Downs today, and exiting the feedlot after 105 days on May 23.

Again there have been some big shifts in the variables since our last calculation on January 16, mostly influenced by the ongoing drought conditions afflicting large parts of eastern Australia.

Today’s calculation suggests a minus-$12.90 result on our typical flatback steer going on feed today, on top of a negative-$6 trade last time.

They are both considerable improvements on a loss of $46 in our final breakeven for 2013 reported back in mid-December, influenced mostly by cheaper feeder steer price and better slaughter price.

We’ve kept our flatback feeder steer ex Darling Downs, bought today, at 175c/kg, unchanged from our previous budget, but back 10c/kg on December. There is still a lot of variability in the market presently reflecting the ongoing desperately dry conditions, however, and if we’d done this calculation a week ago, it is more likely a 170c figure would have been applied.

There’s certainly evidence of a little more urgency in buying patterns this week, with more interest from traditional processor feedlot customers, as well as others, looking at securing additional cattle, both grain and grassfed prospects, heading into autumn.

Pricing our feeder steer for today’s trading budget at 175c/kg values him at $787, or $45 lower than back in mid-December, and $68 cheaper than the market back in late November, when tightness of supply was evident.

It’s still a long way better than a record-low 150c/kg liveweight in our budget back in in early June last year, when the steer was worth only $675 due to drought supply pressures.

Ration price soars

Ration price allocated to today’s grainfed budget has risen a further $15/t, to $370/t – again reflecting drought impact on grain supply.

That came on top of another $15/t adjustment in the last breakeven, suggesting a $30/t rise since mid-December. That’s easily the biggest one-month ration price adjustment since this report was launched back in May, 2011.

With the expectation of post-Christmas summer-crop rainfall now long-gone, additional demand came into the market with a minimal sorghum crop. Another contributing factor is the high level of occupancy for this time of year in many eastern states feedlots, driven by drought placements – which itself has put greater price pressure on grain supply.

The market has responded accordingly, with barley going from the low $290s back in the beginning of December to a $330-$340/t proposition today, while wheat is showing a similar 15-17pc rise in value.

The current finished ration price of $370/t is a record for the two and a half years that Beef Central has been reporting this data-set, and appears to be the highest seen since around 2008, when global grain prices sky-rocketed.

The current ration cost represents a total feeding cost over a 105-day program of $580, another $24 up on last time and $48/head more than mid-December rates.

Presenting this in another form, the ration component currently represents 40pc of the steer’s total production cost, whereas across the 2012 year, the ration component averaged only 30pc of total production cost. That’s a rise of 30pc.

This, combined with the current feeder price, gives a total production cost of $1465, $20 more than last time, driven primarily by lower feeder cost more than offsetting the higher feeding cost.

Cost of gain, using our chosen variables (2kg/day ADG, for 210kg gain over 105 days) now sits at 276c/kg, another 11c/kg higher than mid-January. In simple terms, it means that every kilo of liveweight gained in the feedlot is costing at least 50 percent more than the ‘kilos you buy,’ at feeder steer purchase.

The cost of gain this time last year was 230c/kg, with rations at $310/t.

While consumption rates obviously suffered during the extreme hot days experienced in Downs feedlots earlier in January, there has been less temperature fluctuation and lower temperatures generally more recently, helping improve feeding performance.

Breakeven remains historically high

The combination of the above inputs delivers a breakeven figure in today’s budget of 414c/kg – 7c/kg higher than on our last calculation a fortnight ago, due to the higher ration cost component.

That breakeven figure is close to historic highs, which hit 420c/kg in November when feeder prices got to 190c/kg briefly. The only time it has come close to recent figures was in early 2012, when it got to 412c during a period when feeders went to 215c/kg, and a brief slot during winter last year when the number touched 400c.

Forward pricing moves up 5c

Based on Southeast Queensland processor quotes yesterday, the forward price for 100 day flatbacks going on feed today and closing-out in May is around 410c/kg, 5c/kg higher than our January budget.

The last time we saw +400c for 100-day ox was this week back in 2011 and briefly during the first week of 2012.         

As mentioned in our intro, based on the current forward price for delivery in mid-May, and today’s breakeven at 410c/kg, our trading budget represents a $12.90 loss on a 100-day feeding program starting today. That’s among the best results seen since a short period of trading budget profits in August, and again in May last year, when feeder steer price slumped to 150c/kg.

Looking at finished grainfed cattle forward-bought by processors back in late October at prices around 390c/kg, the spot grid price slaughter market for those cattle today is around the same figure, meaning processors would be line-ball on profitability on those forward-bought cattle, compared to today’s spot rates.

 

• 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.