Grainfed trading budget ends year on a stronger note

Jon Condon, 12/12/2013


Beef Central’s final 100-day grainfed trading budget for the year finishes on a stronger note, recording a loss of $46 ahead, which while still disappointing, is significantly improved from a $70 loss in the same calculation a fortnight ago.

As can be seen on our graph published here, higher ration prices and feeder cattle prices recently have pushed the breakeven figure higher, making it difficult to move back towards trading profit even as the forward price on 100-day cattle improves.

Based on the current forward price for delivery in late March next year, and today’s slightly improved breakeven at 413c/kg, it represents a $46 loss on a 100-day feeding program starting today and closing-out in the last week in March.

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

For today’s budget, we’ve knocked 5c/kg off our feeder price, following the 10c/kg spike in feeder price applied this time a fortnight ago, on the back of some useful rainfall in places.

While better cattle might still be close to those earlier rates, 185c/kg is probably a closer reflection of the current market, this late in the season. Larger numbers of cattle being offered through saleyards leading into Christmas has also contributed to that trend.

Today’s price is still only 5c/kg off the best feeder steer rate we’ve seen in the past 12 months, as the effects of drought start to dissipate. That’s still some way off the 215c/kg highs we saw back in January 2012, however.

Where feeder prices head in 2014 is anybody’s guess, but the trend will inevitably be heavily seasonally-related. Most buyers anticipate that they will be paying more money for feeders next year than they are now, given what has transpired over the past 12 months, but the lack of a decent wet across large parts of eastern Australia could change all that.

Given the strength of world meat markets at present and currency outlook, 250-275c/kg feeders could conceivably be seen some time in 2014, if things go right.

Pricing our feeder steer for today’s trading budget at 185c/kg values him at $832, or $45 lower than a fortnight ago. That’s a long way improved – $157 to be exact – from a record-low 150c/kg liveweight in our budget back in in early June, when the steer was worth only $675 due to drought supply pressures.


Indicus cattle diverted onto boats

Readers will remember that earlier trading budget discussions on Beef Central have often included comparisons between our standard ‘flatback’ steer, and higher Indicus feeder steers available at cheaper prices due to the drought impact. In some cases, those higher content steers, given their 20-25c/kg cheaper price, stacked up a lot better as a trading budget proposition.

But what’s happening now is that those cheaper Indicus steers are no longer in the market, in the numbers they were earlier. The reason? They’re now heading north, being loaded onto live export boats heading into southeast Asia.

Steers like that are currently making 185c/kg liveweight ex Charters Towers, whereas those same cattle earlier might have been worth 165c/kg as feeders, in southeast Qld. The typical 20c/kg freight component made then worth 145c/kg on northern property of origin, representing a 40c/kg turnaround in the value of those steers in a couple of months, since the live export option started to re-activate.  


Ration price stays at $340/t

Ration price remains the same for today’s trading budget as last time, at $340/t. Reputable Downs feedlots currently are offering finished ration at anywhere from $330/t to $370/t. 

The recent rain falls and distribution has certainly not been sufficient to trigger a sorghum planting in most areas, which has not allowed recent high ration prices to back-off, just yet.

The current finished ration price of $340/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 2009.

The current ration cost represents a total feeding cost over a 105-day program of $532. This, combined with the current feeder price, gives a total production cost of $1458, $23 lower than last time, due to the softer feeder price.

Cost of gain, using our chosen variables (2kg/day ADG, for 210kg gain over 105 days) sits at 254c/kg. This time last year, COG was around 213c/kg on a $285/t ration, representing a 19pc rise this year. Feeder steers back then were worth 190c.

One of the recent bonuses experienced in feeding cattle has been outstanding respiratory health and consequent feeding performance, but that is showing signs of dissipating now, with more irregularity in temperatures and weather conditions. Close-outs have been good, but cattle going onto feed more recently have presented a few more problems, lotfeeders report.


Breakeven remains close to record highs

The combination of the above inputs delivers a breakeven figure in today’s budget of 413c/kg – back 7c/kg on our last calculation a fortnight ago, due to the softer feeder steer purchase cost.

As seen in our graph, the breakeven figure still remains close to historic highs, though. The only time it has come close to the current figure 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.

Worth noting, though, is the impact that our bank interest cost (refer to variables at base of page) has on our breakeven sums. Take bank interest out of the calculation, and the breakeven falls to a much more digestible 403c/kg. As cattle prices get higher, holding costs, expressed as bank interest, obviously increase as well. At today’s values, holding cost on a 100-day beast is $37, for example.


Forward pricing moves upwards

Based on Southeast Queensland processor quotes yesterday, the forward price for 100 day flatbacks going on feed today and closing-out late March next year is at 400c/kg. That’s unchanged from two weeks ago, but there’s been evidence that the price has risen above 400c for a period, before settling again. Some recent business may have been transacted below 400c again.

That probably reflects processors having to go a little stronger as the spot market started to firm, to get suppliers to commit, before this week’s flatter market has pushed forward expectations a little lower again. The last time we saw 400c for 100-day ox was this week back in 2011 and the first week of 2012.         

Assuming we get any sort of normal summer rainfall pattern, some say there could still be ‘very big’ upside prospects ahead. There will be few cattle available; every processor has had a cracking trading period over the past eight months; and with a currency 10pc below where it sat this time last year and forecast to move lower, there’s compelling reasons to suspect there will be some big money available for grain-finished cattle early in 2014.

As mentioned in our intro, based on the current forward price for delivery in late March next year, and today’s breakeven at 413c/kg, our trading budget represents a $46 loss on a 100-day feeding program starting today. Take out the interest component, as discussed above, however, and that loss would retract to only $9 a head.

Looking backwards at cattle forward-bought by processors back in August at prices around 380c/kg, the spot market for those cattle today at 390-400c means processors would be around $50 a head better off on forward-bought cattle, compared to today’s spot rates. That differential might have been greater, except for the fact that most large processors are now fully-booked through to their Christmas break, starting Friday next week.   

  • Beef Central’s next trading budget/breakeven calculation will be made week commencing January 6, 2014.


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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