THE impact of lower grain and ration prices is starting to have a small positive effect on profitability in Beef Central’s latest 100-day grainfed trading budget calculated yesterday.

Our latest trading budget, using our standard set of variables (see full list at base of page) has delivered a loss of minus $66, only slightly improved from a near-record minus-$74 a head on August 6. But it’s perhaps the trend that is most important.

The calculation is based on purchasing a flatback heavy feeder steer and placing him on feed in a typical Darling Downs custom feedlot today, and closing out after 105 days on December 4.

With all the talk surrounding the impact of last weekend’s rain, it’s created a little more difficulty in pricing our feeder steer this week. While some might disagree, we’ve kept our feeder price unchanged at 200c/kg. There’s certainly been bids this week of 10-15c above that level evident in the market this week for cattle fitting our nominated description, but whether that lasts is another point.

Certainly more rain will be needed in many areas of Eastern Australia over the next three to four weeks to have any serious impact on the store/feeder cattle market.

The current feeder price at 200c remains the highest this reporting sequence has seen in two years, reflecting the general shortage of those heavier in-spec feeders that feedlots are looking for, after 18 very dry months.

Valuing today’s 450kg feeder steer at 200c/kg values him at a neat $900 at induction – again, equal to the highest figure in two years. The steer price bottomed in May last year when it hit 150c/kg briefly, meaning the steer investment has risen $225 a head since.

Ration price back $5/t

Following on from discussions in our previous trading budget about easing grain prices, we’ve adjusted our current budget’s ration price downwards by $5/t, to $375/t.

That’s recognition of a little more of the current cheaper grain starting to exert an influence over ration pricing, and the fact new-season grain is now probably a month or so away. One of the unknowns is the volumes of grain likely in northern NSW and southern Queensland, but based on current grain markets, and rain impact, we should continue to see downwards pressure on ration prices.

A shortfall of local new season grain, however, would inevitably see prices stay higher, due to freight from growing areas further south.

As discussed a fortnight ago, however, what’s holding up that process is the volumes of grain bought earlier at higher prices that many feedlots are still ‘eating their way through.’ Some wheat currently on hand could easily have cost the lotfeeder +$360/t, whereas the spot price for wheat last week, was around $310-$315.

Once those stocks clear, however, process should move lower, and in the example we used as illustration in our last breakeven (click here to view), a possible ration price of $340/t was discussed.

Today’s nominated ration price of $375/t remains within sight of our recent record high of $385/t, at the height of the grain price spike.

However with higher pen occupancies pushing demand for feedlot space, and the forward buying strategies of many feedlots,  current representative Downs feedlot ration prices are currently anywhere from $345/t (likely to be higher-moisture rations) to $405t.

Today’s ration price of $375/t represents a total feeding cost over a 105-day program of $587, back $8/t on a fortnight ago, but still $53/t more than mid-December’s rates.

All that delivers a total production cost (steer price plus custom feeding price, freight, interest, contingency, levy and induction costs) of $1583/head, down $8 on last time.

Cost of gain, using our chosen variables (2kg/day ADG, for 210kg gain over 105 days) now sits at 280c/kg, back 4c/kg on last time.

 

Breakeven stays close to record

The minor shift in variables as outlined above means the breakeven on yesterday’s trading budget sits at 449c/kg – back just 2c/kg on the record high achieved three weeks ago, when the breakeven drifted into the 450s for the first time.

The current high breakeven figures are due, of course, to the recent higher feeder steer prices, coupled with ration prices at close to historic highs. The last cycle when the breakeven got remotely close to current figures was back in early 2012, when it got to 412c during a period when feeders shot up to 215c/kg.

For comparison purposes, the breakeven this time last year was 396c, and production cost, $1395. That’s a $188 difference between total production cost today.

 

Forward pricing unchanged at 430c/kg

Based on Southeast Queensland direct consignment processor quotes provided yesterday, our forward price for 100-day flatbacks going on feed now and closing-out on December 4, is at 430c/kg, the same as last time. That’s equal to the record high set a month ago for grainfed ox, the highest seen since Beef Central started this analysis series back in 2011.

While it’s historically a good time to have cattle on feed, it’s also influenced by supply in the lead-up to processors’ Christmas/New Year shut-down period. As a result there may well be business being conducted at levels above that price.

All that means the difference between today’s breakeven figure and the forward 100-day price delivers a trading budget result in today’s calculation worth 19c/kg, or minus $66/head on a feeding program starting today, and closing out in early December. Following the minus-$74 result seen in our last budget, they’re the two worst results seen since a minus $66 result around this time last year.

A different set of chosen variables – more aggressive feedlot performance, for example – would change the outcome quite substantially, however.

Our assumptions have always been based on 2kg/day gain and consumption of 15kg/day. Reduce that consumption to 13.5kg, for example, which more aggressive feeders may be achieving on high-quality cattle, or shrunken cattle at purchase, and the breakeven result adjusts markedly to 432c/kg.

That represents a loss of just $6 a head, in today’s analysis.

Looking back at 100-day cattle that went on feed back in late May, and forward-bought for slaughter this week, they were selling for 430c/kg, on a breakeven of 440c, against a spot market today of which is pretty much the same, meaning processors would be breaking-even in comparative terms with the same cattle bought this week.

 

US feeder flags long-term losses

While on the topic of the long sequence of losses recorded in Beef Central’s trading budgets over the past three years, it was interesting to note comments made at a recent client seminar hosted in Brisbane by risk management specialists, FC Stone.

Visiting US lotfeeder Matt Selee, from Empire Feeders out of Satanata, Kansas, said the average trading loss in US fed cattle over the past ten years had been US$50. There would be lots of positive trades within that ten year cycle, but obviously a larger number of occasions when results were in the red. Multiply an average US yearly fed cattle kill of 20 million head by ten years, and the accumulated losses must be close to US$10 billion.

His point was that lotfeeding in the US is not a cost-plus business, it is a trading business. Participants cannot expect to buy and sell in the market today, and lock in a profit, much the same as in Australia.

 

• 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.