Lotfeeding

Grainfed trading budget edges closer to breakeven

Jon Condon, 19/09/2013

An easing in feeder steer values has delivered a mild improvement in outlook for 100-day grainfeeding programs in Beef Central’s latest trading budget calculated today.

Variables used in our regular calculation suggest a loss of $33 on a flatback feeder steer entering the feedyard yesterday, and closing-out after 105 days on feed on January 1.

That result is $22 better than our previous trading budget calculation on August 29, which produced a theoretical loss of negative-$55, but still a big gap from our last projected net profit, of a modest +$4, posted on the same exercise back on May 16.  

Using our chosen set of variables (see full list at base of page) and based on market signals, we have reduced the flatback feeder steer purchase price (ex Darling Downs) in our latest budget by 5c/kg, to 170c/kg.

 

Christmas closure effect

That soft reduction is due, in part, to some feedlot buyers being out of the market for the past fortnight, adjusting their programs with the Christmas/New Year shutdown periods imposed by virtually all large northern processors. Most Queensland export sheds will close for two or three weeks from either December 20, or December 24 this year.

The second side of the equation is difficulty in sourcing replacement cattle during the same period. Even in those cases where slots may be available for a kill around that holiday period, lotfeeders wanting to protect occupancy levels do not want their pens emptying out just prior to Christmas, because subject to weather and other variables, they could then be hard to re-fill.

A third contributor is the continuing heavy custom feeding demand due to continued dry conditions, which is producing lacklustre feeder steer buying demand, because no lot operator really has to buy aggressively to fill pens.

Adding to the slowdown is the typical short post-Christmas lull for domestic beef sales, as households plough their way through leftover celebratory fare like ham and turkey.

The 170c/kg feeder price apportioned in our latest trading budget also reflects the fact that there are also a few less in-spec feeder cattle about at this time of year, and particularly due to this year’s weather effect. A number of trade sources have commented recently that lotfeeders are in some cases having to settle for progressively lighter feeders, as the year has worn on.

Applying a feeder price of 170c/kg this week values the steer in yesterday’s calculation at $765, down $22 on three weeks ago, but still considerably improved from a record-low 150c/kg liveweight in our budget in early June when the steer was worth only $675 due to drought supply pressures.

 

Ration price remains unchanged

The surprise packet again in this calculation is ration price, which we have held at $330/t, despite earlier predictions that new-season grain harvest might see feed prices trending down.

Our feedgrain market sources anticipated six weeks ago that ration price by now might be back $20/t to around $310/t, but that hasn’t happened.

Feedgrain prices have held up better than expected, because of the poor finish in many northern graingrowing areas, frost damage in some areas, and continued strong demand from feedlots. New season grain will not start to be seen for perhaps another month yet.

The $330/t ration cost applied in yesterday’s budget is a record-equalling high for our report sequence, dating back to May 2011. It represents a total feeding cost over 105 days of $517. This, combined with the current feeder price, gives a total production cost of $1372.

Cost of gain, using our chosen variables (2kg/day ADG, for 210kg gain over 105 days) remains unchanged at 246c/kg. This time last year, the cost-of-gain was around 200c/kg on a $280/t ration price, and a feeder price of 200c/kg.

While feeding performance heading into spring can sometimes be variable, with temperature variations and the prospect of some wet weather, in northern feeding regions at least, this year has been largely plain sailing.

The above inputs suggest a breakeven figure in yesterday’s budget of 389c/kg – back 7c/kg on three weeks ago due to the decline in feeder steer purchase cost.

 

Forward pricing

Current forward public grid prices for 100-day ox from Southeast Queensland processors for January 1 close-out, have lifted 10c/kg since our last calculation. Public bids obtained yesterday were around 375-380c/kg dressed. The fact that processors are still keen to maintain high rates of kill reinforces the view that there are still good margins present in grainfed export processing at those rates.

The pricing perhaps also reflects the traditional shortage of well-finished slaughter cattle in the run through to Christmas, when prices often rise as a result.

As mentioned in our intro, the variables outlined above deliver a $32 loss on our trading steer, $22 worse off than the $55 loss figure recorded three weeks ago.

Apply the formula to feeder cattle carrying some Indicus influence bought at 160c/kg instead of 170c, however, and the result comes out at a $15 profit. Doubtless, some players are taking that option, but as we have stated in this report previously, the market can only cope with so many Indicus influenced 100-day cattle before it reaches saturation point. Many processor programs have specific limits on content, or even exclude Indicus.

Looking back at 100-day flatback cattle that went on feed back in mid-June for slaughter this week, they had a breakeven at 383c/kg according to our calculations, on forward-contract meatworks rates then at around 370c/kg. The predicted margin per head then was -$45.

However there have been some cattle placed on feed by owners recently that are out of spec, weight wise, due to dry conditions. For those owners, who may have elected to feed-on sub-380kg intake cattle for a few weeks to get them into a more desirable grid slot, their outcome would obviously be worse than yesterday’s trading budget figure. Offsetting that, however, could be some performance advantages, through some compensatory gain due to drought limitations.

The exception would be if a big shortage of slaughter cattle emerges due to rain disruptions, for example, when they might be worth a little more to the processor. 

The market for spot 100-day cattle in Southeast Queensland this week is about 375c/kg. On that basis, processors who secured this week’s 100-day kill forward back in June at 355c/kg contracts are about 20c/kg (or $70 a head) better-off than they would have been buying those same cattle out of today’s spot market.

Looking ahead, Beef Central’s supply chain contacts anticipate that feeder cattle numbers will become harder to come by over the next month or so, given that a lot of young cattle have already been moved out of the system.

A lot of NSW and Victoria, and areas north to Goondiwindi on the Queensland border, have now had a promising start to spring, with 25-50mm falling across large areas in the past week. Most will need more to set them up for the run to Christmas, however.

That is likely to put upwards pressure on price, especially if there is any sort of significant spring break across eastern Australia to add fuel from grass restockers.

Don’t be surprised to see a 10-15 percent rise in feeder prices in coming months, given any sort of widespread spring break.

 

 

  • 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. 

 

 

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