Grainfed trading budget marches back into positive territory

Jon Condon, 19/04/2012

There was an almost audible sigh of relief across the feedlot sector this week as projections on feeding 100-day cattle have suddenly started to look more rosy.

Beef Central’s regular trading budget compiled yesterday produced a positive-$10 trading result on typical 100-day cattle entering the feedyard yesterday, and closing-out on August 1.

That’s just the second time we have projected a profit since the exercise started during Beef Central’s launch back in May last year.

The result captures the gentle shift in sentiment that is out there in the marketplace at present with regard to custom-feeding prospects for the back end of the year.

Darling Downs feedlot operator Charlie Mort confirmed last night that custom-feeding inquiries have started to filter-in in the past two weeks, especially since the arrival of early frosts and country starting to dry off.

“In our case that has not yet really been converted into new feeding contracts, but it is moving in that direction,” Mr Mort said.

The shift in trend towards profitability in lotfeeding was picked up in our last breakeven, back on April 4, when a relatively modest negative-$20/head result was posted – still a $30 improvement over the previous projection of March 20. 

Yesterday’s fortnightly breakeven and trading profit projection on 100-day grainfed cattle was based on our standard 100-day beast placed on feed April 18 and exiting the feedyard after 105 days on August 1.

The key influence in the encouraging result was a substantial easing in feeder cattle price. That trend has been dramatically picked-up through the NLRS Eastern Young Cattle Indicator figure, which closed yesterday at 375c/kg. That’s a 15c collapse in a week, and now within 5.5c of the lowest point seen for at least the past 18 months.  Last time we did a breakeven, the EYCI was at 393c, representing an 18c decline since then.

The reason?  National cattle yardings were significantly stronger after supplies increased in every state after the Easter holiday period. The compounding effect of dry weather and cooler temperatures is motivating producers to sell cattle in big numbers before the winter break. This was apparent at Roma sale on Tuesday (see Beef Central’s report here) where 9300 head were yarded, easily the largest sale in Australia this year.

Numbers were also higher elsewhere in Queensland this week; at every saleyards market in NSW; and in Victoria, where yardings doubled in size on a week earlier.

Getting back to this week’s breakeven, the latest result is the best seen since late-October last year when we registered a meagre +$1 trading profit – the only other time the figure has been in positive territory in the last 11 months.

For today’s budget, we have applied a feeder price of 190c/kg, back 7c/kg on our last calculation, and minus-10c/kg on a month ago.

That values our feeder steer (flatback crossbred, ex-Darling Downs) at $855, softening a lot from $887 last time, and a long way from our year-opening, January 9 steer value of $967.

The 190c steer value applied this week may not currently be reflected in large numbers of steers being sold to feedlots at that price, however, being a rate still ‘below vendor expectations’ and further supported by the lack of urgency to move cattle more aggressively, given the season.

Risk in holding feeder cattle too long?

Given current declines being seen in feeder cattle prices, is there a risk in vendors hanging onto feeder cattle too long, in the hope that prices will rise, and then being penalised for being outside the typical 400-500kg feeder spec?

Firstly, producers tend to sell cattle lighter than they otherwise might. But theoretically, steers today at the lower-end of the range (400kg) doing 0.8kg/day still have a generous 120-day ‘window of opportunity’ to be sold as feeders, without attracting weight discounts. So there is no real rush. But the question is, where will the feeder price be in three or four months’ time?

In practical terms, however, if the top end of those steers should blow-out through higher weightgain, it is actually a bonus, rolling into a slaughter ox rate instead of a feeder rate. That’s not a bad thing.  

Finished ration price applied in yesterday’s calculation remains the same at $245/t, using all new-season, predominantly white grains. It should be said that there are commercial lots with ration prices both above and below that figure, typically in a range from $230/ to $260. This is due to a number of influences:

  • some yards may be discounting feed price to try to fill pens
  • some prices may represent earlier grain purchasing decisions
  • moisture content may vary
  • grains used in the ration (sorghum cheaper), and
  • location of the yard. 

That gives a total production cost yesterday calculated at $1330, a $30 decline from April 4, due to the softer feeder steer purchase price. 

Using the above set of variables suggests a breakeven figure at 377c/kg dressed weight, down from 386c a fortnight ago, for 100-day grainfed steers closing-out August 1.

Export meatworks forward pricing on 100-day grainfed cattle are currently around 380c/kg. There are certainly lower bids evident in the market, in the mid to high 370s, and low 380s in patches.

It appears spot forward rates may be starting to show signs of retreat, but we still feel confident that 380c is a valid forward price figure – particularly given the very low numbers on feed at present, which is only like to encourage processors to hold the line.

The big correction in the EYCI, and the sense of greater numbers hitting the market from Victoria to Queensland may also influence those pricing decisions. All this can only contribute to improved trading margins for processors. 

Historically, the annual low-point in the finished cattle market is May/June, typically creeping up through the spring and into the summer season.   

The 380c figure for August 1 kill is still a long way from forward sale prices of 400c/kg applied in our January 9 assessment.

Today’s forward slaughter price, applied over our breakeven figure, indicates a trading profit of +$10 a head. Beef Central can hear the sighs of relief from here.

Works grainfed profitability 

Yesterday’s public processor grids for spot market 100-day grainfed ox among southeast Queensland plants were at 345-350c for milk and two-tooth cattle, but 370c is probably a more representative figure for current rates being paid.

Any 100-day cattle forward-bought by processors back in early January for slaughter this week had breakevens around 400c, meaning losses on those cattle to processors currently worth about $105 a head. No wonder plants like Kilcoy are taking an extended holiday, and Prime City has been shut permanently.

  • 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; interest component.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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