Lotfeeding

Grainfed trading budget blows out to $87 loss

Jon Condon, 11/01/2013

 

Higher feedgrain prices and growing supply-side pressure in feedlots as cattle placement numbers swell in the face of dry conditions have had a negative impact on Beef Central’s latest fortnightly grainfed trading budget calculated yesterday.

Counter to normal yearly cycles, and taking some market observers a little by surprise, export processors have largely opened the batting in terms of grid offers this year at, or slightly above, rates being offered in late 2012.

That suggests the export job, customer demand wise, remains quite strong, despite the A$ this morning nudging US106c.

Recent sharp rises in feedgrain costs have contributed to the worsening breakeven position revealed yesterday, based on typical 100-day grainfed flatback cattle, entering the feedlot yesterday and closing-out after 105 days on feed in April, week four (variables listed at bottom of page).

Beef Central calculates the likely loss at $87. That’s a further $17 deterioration from our previous budget calculated back on December 20, and a late November calculation producing a theoretical loss of $38 a head. 

This recent decline in profitability contrasts with a positive $5 trade ten weeks ago and +$21 projected profit back in mid-October.

For yesterday’s trading budget, the prescribed flatback feeder steer buy price ex Darling Downs stayed the same as three weeks ago at 185c/kg. That’s partly because the 2013 market is only just opening up, and newer price signals are yet to emerge. Some feeder cattle matching our nominated spec are currently changing hands above that level, market participants say.    

There has not yet been a flood of cattle entering the market due to hot and persistently dry conditions, with around 4700 yarded at the first Roma sale for the year, roughly the same as pre-Christmas. A little late December rain took some pressure off in some areas of the Darling Downs, but much will depend on arrival of relief rainfall over the next four weeks.

Yesterday’s breakeven steer value apportioned at 185c/kg values him at $831, back $23 on six weeks ago, and $135 less than what he was worth 12 months ago – the price high-point for 2012, when our steer was worth $967.

Ration price for this week’s trading budget have been adjusted upwards by another $10/tonne to $310/t. That’s on top of an accumulated $15/t rise over the past six weeks, and takes the finished ration price to its highest point since Beef Central started to report this data-set in May, 2011.

As highlighted in Luke Walker’s feedgrain market report published on Beef Central on Wednesday (click here to view), the hot dry weather is all the talk on feed markets and is causing grain markets to firm. Also in the mix are how the sorghum crops will hold up, and how many acres are planted with the Christmas rain in Queensland and Northern NSW.

A quick overview of the summer crop:

  • Central Queensland sorghum is only 15pc planted, with growers needing +100mm rain to plant more acres. Some may just wait to plant chickpeas in April and give sorghum a miss.
  • Darling Downs sorghum is 80pc planted although yields will be under pressure with the heat.
  • Western Downs sorghum is 20pc planted, and again yields have been impacted with heat, although some areas had good rain in late December.
  • Liverpool Plains new crop sorghum is less than half planted in acre terms compared to previous years. Central NSW is very dry and needs rain now. Growers are reluctant sellers and are holding grain tightly as a hedge on winter planting or to feed to their livestock.

Another factor in current grain price movement comes from the demand side, with many Downs feedlots now at or close to feeding capacity due to the effects of prolonged dry weather across NSW and Queensland. This has meant many feedgrain buyers have had to be more bullish in their buying strategies, which has probably exacerbated the market strengthening trend.

The ration price of $310/t attributed in yesterday’s grainfed trading budget represents a total feeding cost over 105 days of $485 on our trading steer, up $15 from three weeks ago. Total production cost is calculated at $1409, up $15 on late December’s feeding budget figure, due to higher ration price.

Based on this, lotfeeders are likely to be seeking to place heavier, rather than lighter cattle on feed, to moderate the difference between steer buy price and the current cost of gain.

Cost of gain, using our chosen variables (2kg/day ADG, for 210kg gain over 105 days) has shot up from 216c/kg in late November to 224c/kg in late December, and 233c/kg yesterday, in line with higher ration price. This time last year, the cost-of-gain was 187c/kg on a $250/t ration price, about $60/t or 25pc lower than yesterday’s figure. Feeders back a year ago were worth 215c/kg, however.

Back then, it was in lotfeeders’ interest to feed lighter cattle, for exactly the opposite reasons to what applies today, in terms of cost of gain.  

All the above variables deliver a breakeven in yesterday’s budget of 400c/kg dressed weight on a 100-day feeding exercise, up from 395c/kg three weeks ago.

That’s the highest breakeven figure seen since the July-August period (402c/kg), but the big difference is that back then, the breakeven result was driven by high feeder steer purchase price, whereas now, grain and ration price is the dominating factor.

Current public grid prices from Southeast Queensland processors for April week four, are around 375c/kg, unchanged from pre-Christmas’s budget, representing a trading loss on the current proposition of minus-$87.

Part of this can be explained by the big inflows of feeder cattle during October/November last year. With feedlots on the Darling Downs and northern NSW near full due to dry weather, processors no longer have to set forward prices at levels designed to ‘attract’ cattle onto feed.

If anything, there is a potential oversupply emerging during February/March, one market contact told Beef Central yesterday.

As discussed in Beef Central’s report three weeks ago, the curious thing is that feedlot numbers have almost defied logic: the big recent intake has happened despite grain prices heading upwards, and slaughter cattle prices trending downwards. As recently as August/September, the finished cattle price was still in the 390s.

Weather has over-ridden all that, however. While reports suggest the export meat market has actually improved lately, the slide in value of grainfed cattle is being driven squarely by supply-side factors. 

Looking back at feeder cattle forward-contracted in the high 300s back in September for slaughter this week, spot market 100-day cattle this week are changing hands at 365c/kg (again, reflecting the looming oversupply of grainfed cattle). This represents a $100/head loss to processors on forward-bought cattle.

If it rains, however, that could change suddenly, as slaughter supply becomes tight and processors again focus on more ‘accessible’ feedlot cattle to maintain kills, forcing prices up.

Attention will now start to focus on the ALFA/MLA quarterly feedlot survey for December, likely to be released around mid-February. All indications are numbers could rise substantially, especially in the biggest feeding states of Queensland and NSW, where the worst of the dry conditions is being experienced. The September survey logged a 9pc decline in numbers on feed.

However the September quarter report also showed an ‘unusual’ decline in numbers on feed in NSW, declining almost 50,000 head to 196,000 head between June and September. Some stakeholders have queried the accuracy of that statistic, especially the gaping 50,000 head drop in the segment for NSW feedlots +10,000 head capacity, despite the arrival of any spring break across the state.

Regardless, expect to see a very sizeable jump in numbers on feed for the December quarter. How much impact this has on grainfed prices at close-out time remains to be seen.

 

  • 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 356kg dressed weight; ADG of 2kg; consumption 15kg 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.

 

 

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