AT first glance, the result looks suspicious, given the recent surge in ration price due to near record feedgrain prices. But we’ve double-checked, and Beef Central’s latest fortnightly grainfed trading budget has moved back very close to breakeven, after ten months in the red.
The reason is twofold: the recent easing last week in feeder cattle prices due to big numbers of cattle again flooding the market, and a moderate rise in finished forward grainfed cattle grid price.
Friday’s trading budget calculation has produced a negative $1 result, based on buying a flatback 450kg feeder steer now, custom feeding him at a typical Darling Downs feedlot and selling him to processors at close-out after 105 days on July 4 (see full list of variables at base of page).
Theoretically, that should produce fireworks for two reasons: firstly, it’s American Independence Day (cracker night), and secondly, it’s the closest we have come to a profit on Beef Central’s grainfed trading budget exercise since May last year.
To put the improvement into context, just a little over two weeks ago, the trade was still a negative $49 proposition, while a fortnight before that it was negative-$36. The last time it got anywhere near Friday’s predicted result was a -$6 trade, briefly, back on January 17 (click here to view).
For today’s budget, we’ve dropped our flatback feeder steer price ex Darling Downs by 10c/kg liveweight, to 175c/kg. As keen market watchers would have already noted, the market suffered one of its rougher weeks in recent times last week, with some very large saleyards yardings reported and prices coming under considerable pressure as a result. Toowoomba has yarded +3000 for the past two weeks, while some big yardings were reported at Warwick and across the NSW border.
Three weeks ago, immediately after the good rain that came through in some areas, feeder prices firmed a little, but that trend was only temporary and the market has soured somewhat since then. The trend is clearly captured in the EYCI figure, which at 299c/kg on Friday has dropped more than 20c/kg in less than a fortnight, since March 10.
To put our Friday budget’s nominated feeder price into greater perspective, however, there were cattle fitting our spec trading closer to 165c/kg last week, while equally, some bids in the market as recently as Friday were around 180-185c.
Pricing Friday’s steer at 175c values him at $787, back $43 on this time a fortnight ago, and $68 cheaper than late November, when prices went to 190c due to shortness in supply. It’s still a long way better than the record-low 150c/kg liveweight in our budget back in in early June last year, however, when the steer was worth only $675 due to drought supply pressures.
Ration price continues to surge
There’s been no relief from recent hikes in the feedgrain market, with finished ration price allocated to our latest grainfed budget rising sharply again, this time up $10/tonne to $385/t.
That’s a new record for this set of calculations, tracing back to May 2011 when Beef Central started. It's also getting close to the record high ration prices seen in 2008, when global grain prices sky-rocketed.
One veteran Downs lotfeeder remembers paying $440/t for wheat, at the height of the spike.
"But roughage prices were cheaper than they currently are, because there wasn't a drought on. The net result was a ration price aboutr $30/t more than what's being charged today," he said.
Feedgrain has gone up around $15-$20/tonne in the past week, in places around $350-$355/t last week for barley/wheat. One feed wheat trade price floating around on Friday suggested $390/t, but it remains unconfirmed. Virtually all supplies are currently being drawn from southern growing areas, and carrying a freight component in some cases up to $100/t.
On the strength of these savage kicks in grain price, Downs custom feeders are currently offering ration quotes anywhere from $375/t to +$400/t, depending on ingredients, processing method and likely performance. Ration price “with a four at the front of it,” are probably unprecedented in lotfeeding in Australia, but are likely to become more commonplace in southern Queensland custom feedlots within the next fortnight, market watchers say.
The current ration price represents a $45/t rise since mid-December, as drought pressures have impacted on grain production, as well as demand from feedlots that continue to operate near capacity, adding demand pressure to the grain price.
This time a year ago, feedlot ration price published in our breakeven was just $295/t, representing a full $100/t rise since. On a 100-day bullock fed for 105 days, that’s costing another $150 in feed cost, alone.
The current ration movement represents a total feeding cost over a 105-day program of $603, up another $16 since a fortnight ago and $71/head more than mid-December’s rates.
Because feeder steer values have dropped recently, the total production cost (steer price + custom feeding price) has actually eased a little, despite the big jump in feed price. Total production cost currently is $1483, back $19 on two weeks ago.
Cost of gain, using our chosen variables (2kg/day ADG, for 210kg gain over 105 days) now sits at 287c/kg, 11c/kg higher than our early March budget.
Breakeven eases off recent record
While it might be only short-term, depending on what the weather does, the dip in feeder price experienced last week (-$45 in value compared with two weeks earlier) has more than offset the rise in feed cost (+$15, a head), delivering a slightly lower breakeven figure in Friday’s budget of 420c/kg.
That’s 9c/kg lower than our previous budget’s record. The last time the breakeven got remotely close to that figure was back in November when feeder prices got to 190c/kg briefly. The only other times it has come close to Friday’s figure was in early 2012, when they got to 412c during a period when feeders shot up to 215c/kg, and a brief slot during winter last year when the number touched 400c.
Forward pricing lifts to 420c/kg
Based on Southeast Queensland processor quotes from Friday, the forward price for 100-day flatbacks going on feed now and closing-out in July, week-one, is 420c/kg – up 5c from last time. The last time we saw +400c for forward price on 100-day ox was back in 2011 and briefly during the first week of 2012.
All that delivers a trading budget result of minus $1 on a 100-day feeding program starting last Friday. As we said in our intro, that’s easily the best result since May last year when feeder cattle prices got very cheap.
The current spot market for 100-day cattle across southeast Queensland processors shows a pretty big spread from around 385c to 410c/kg. We’ve chosen our representative figure for Friday at 395-400c/kg.
Sources tell us that the abundance of grassfed slaughter cattle caused by drought, and the bigger profit margin to processors on cow than steer at present, has partially impacted that spot position for grainfed steer. For evidence of this, look no further than the astronomical prices now being paid for Australian imported 90CL grinding beef into the US, currently at records pushing A500c/kg (see Beef Central’s report last week).
Looking at finished grainfed cattle forward-bought by processors back in December at contract prices around 400c/kg, they are line-ball with the current spot grid price slaughter market. That means processors currently are no better, or worse off, on forward-bought cattle than they are on 100-day steers bought in the current spot market.
Will this week’s weather event deliver?
Looking ahead, it will be interesting to note what current and likely shifts in valuables do to profitability in our next budget. Cattle prices on Friday showed some encouraging signs of firming, most likely due to expectations over the likelihood of rain forecast for southern and central Qld/northern NSW later this week. If it eventuates, feeder prices could easily jump back up to the 90s, which would destroy any prospect of a positive trade, under the weight of heavy increases being experienced in ration price.
All other variables remaining where they are today, a 190c/kg feeder steer in our next budget at the end of the month would push our breakeven figure out to a horrific 447c/kg.
On the other hand, good, widespread rain later this week could also reduce feedlot placement demand – especially if it can produce an oats crop or some late-season grass growth. With export grain price parity perhaps $60-$70/t less than domestic feed grain prices, any slowing in feeder placements could produce some downwards movement in domestic grain price, market watchers suggest.
Beef Central's regular 100-day grainfed breakeven scenario is based on a standard set of representative 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.