Grainfed trading budget pushes closer to profit

Jon Condon, 07/05/2014

IT may have taken 18 months, but some Queensland feedlots offering custom-feeding services are again starting to hang out the ‘vacancy’ shingle, as the seasonal turnaround in many Eastern Australian grazing areas takes effect.

Since late 2012 as the drought started to encroach, it’s often been difficult-to-impossible to book space in any reputable custom feedyard across Queensland or northern NSW, with pens refilling as soon as the previous mob closes-out.

page-33But a number of yard operators Beef Central has spoken to in the past fortnight – notably at last Monday’s Dalby seminar hosted by the Australian Lot Feeders Association and addressed by MLA’s regional managers – indicated that vacancies are starting to appear.

“I think you’d still struggle to place a thousand head in one hit, but pens (anywhere from 60 to 200 head) are starting to open up, as the demand for custom feeding subsides,” a good source told Beef Central yesterday.

The reason we raise this is that the trend will inevitably have an impact on the cost involved in getting cattle custom-fed, and hence the likely results indicated in our regular grainfed trading budgets, going forward.

Depending on the business model applied, some feedlot owners will simply fill those vacant pens with their own cattle. Charlie Mort’s 30,000 head Grassdale feedlot is a good example. Mr Mort acknowledged this morning that custom feeding demand had subsided somewhat, but in his case, he’s refilling pens with company-owned cattle.

But other feedlots will leave them vacant, if custom-feed customers start to decline.

Any reduction in grainfeeding operations is likely to have a twofold effect on the cost involved in custom feeding:

  • Along with prospects for a good winter crop, it should help take pressure off demand, and hence price, for feedgrains. Queensland grain prices have typically been close to $100 a tonne more than southern growing regions over the past six to eight months, partly influenced by high feedlot demand in the north
  • Market forces suggest there has to be a balance between occupancy and margin, meaning margins applied by feedlots for custom-feeding programs are likely to decline. While nobody has suggested that custom feedlot operators were ‘gouging’ during the last drought event, the fact that there was at times frenzied competition to secure custom-feeding space put little pressure on lot operators in terms of feeding costs, and margins. With supply and demand now appearing to be moving closer to equilibrium in the Queensland feedlot market, greater competition is likely to be seen among custom feedlots in terms of pricing/margins.


Trading budget results improve

Results in Beef Central’s latest trading budget calculated yesterday show profitability again moving back towards the black, influenced mostly by increases in the forward price for finished 100-day grainfed cattle.

A minus-$36 result is a $12 improvement on our last budget calculated a month ago. Our reporting sequence has been interrupted a little by the recent short holiday weeks. The latest figure is still well short of the calculation back on March 23, however, when we posted a -$1 result.

Yesterday’s trading budget calculation is based on buying a flatback 450kg crossbred feeder steer now, custom feeding him at a typical Darling Downs feedlot and selling him to processors at close-out after 105 days in late August (see full list of variables at base of page).

That exit date is significant, as it is getting towards the time of year when slaughter cattle are short in Queensland, and consequently grainfeds tend to attract stronger relative demand.

For yesterday’s budget, we’ve lifted our feeder steer price ex Darling Downs by 5c/kg liveweight, to 190c/kg.

Certainly there is a fair spread evident in the market at present between higher indicus content and true flatback steers, with Brahman types worth potentially 15c/kg less than that. At those rates, profitability on indicus steers would likely be much closer to, or better than breakeven.

Part of the reason for the price gap may be that one very large competitor for higher indicus feeder cattle has gone quiet for those cattle, perhaps because they are targeting more 100-day supply into the emerging Costco big-box retail network, which is looking for a somewhat higher quality performance for its Kirkland (USDA lower Choice equivalent) brand.

As keen market watchers would have already observed, the EYCI has surged strongly since the March/April rain, lifting from around 300c in late March to 355c this week.

While the heifer market, certainly under 350kg is still a little depressed, there appears to be an overall shortage of feeder cattle 300kg+ in the market, and today’s feeder price reflects that.

Keep in mind, though, that we are now entering the traditional calendar low-point in the feeder market, representing the bottom of the EYCI and Queensland Cattle Market Index cycle, in a normal year.

Pricing yesterday’s feeder steer at 190c values him at $855, up another $23 on this time a month ago. It’s a big gap from the record-low 150c/kg liveweight we saw during the depths of the drought in our budget back in June last year, however, when the steer was worth only $675.


Ration price equals record

There’s been no relief from recent hikes in the feedgrain market, with finished ration price allocated to our latest grainfed budget staying unchanged at $385/t.

While nothing has changed just yet, with a few gaps opening up in custom-feeding pens, and an excellent winter crop planting on the back of recent rain (especially through NSW and Victoria) grain prices could potentially start to weaken.

This week’s unchanged ration price at $385/t is an equal-record for this set of calculations, tracing back to May 2011. It’s also getting close to the record high ration prices seen in 2008, when global grain prices sky-rocketed.

On the strength of the earlier sharp rises in grain prices, Downs custom feeders are currently offering ration quotes anywhere from $365/t to $405/t, depending on ingredients, processing method and likely performance. The current ration price represents a $45/t rise since mid-December, as drought pressures impacted on grain production, as well as demand from feedlots that have operated at, or near capacity adding demand pressure to the grain price.

This time last year, feedlot ration price published in our breakeven on May 1 was just $295/t, representing a $90/t rise since.

The current ration price represents a total feeding cost over a 105-day program of $603, up $16 since late-March and $71/head more than mid-December’s rates.

The rise in feeder steer price means the total production cost (steer price plus custom feeding price, freight, interest, contingency, levy and induction costs) has gone up again, reaching $1553, up another $23 on a month ago.

Cost of gain, using our chosen variables (2kg/day ADG, for 210kg gain over 105 days) now sits at a record 287c/kg, 11c/kg higher than a budget we completed back in early March.


Breakeven hits new record

The combination of high grain/ration prices and the higher feeder price means the breakeven on yesterday’s budget has again set a record, reaching 440c/kg. That’s a rise of 5c/kg on a month earlier, and 11c/kg above our previous high-water-mark set earlier this year.

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 time it has come close to yesterday’s figure was in early 2012, when it got to 412c during a period when feeders shot up to 215c/kg.


Forward pricing lifts to record 430c/kg

Based on Southeast Queensland direct consignment processor quotes provided yesterday, the forward price for 100-day flatbacks going on feed now and closing-out in August, week-three, has risen 10c/kg to 430c/kg. That’s a record high for grainfed ox since Beef Central started this analysis series back in May, 2011. In fact it may be an all-time record, as our data could find nothing this high, tracing back four years or more.

There certainly appears to be a willingness among processors with export grainfed programs to pay higher prices, heading into the back half of the year. By the end of August, it’s reasonable to assume that quality slaughter cattle will be in short supply, given what has happened across Eastern Australia over the past 15 months. That’s especially so if feedlot placements are to show any further signs of slowing.

All that delivers a trading budget result in yesterday’s calculation of minus $36 on a 100-day feeding program starting today, and closing out late August.

Looking forward, it’s not hard to envisage that result improving pretty dramatically in coming months, however. Feed in a $300/t ration into the equation, which is plausible given the big winter crop planting, and the profitability position improves dramatically, heading well into the black.


100-day spot market

The current spot market for 100-day cattle across southeast Queensland processors is variable, with evidence of offers from 385c to 420c/kg this week, depending on location and other circumstances. We’ve chosen 410c/kg as our representative figure, but that’s only likely to move higher in coming months.

Looking at finished grainfed cattle forward-bought by processors back in early February for slaughter this week, at contract prices around 410c/kg, processors are currently all-square on those cattle, compared with buying the same item out of the spot market yesterday.


  • 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.



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