Lotfeeding

Lift in feeder prices keeps grainfed trading budget in the red

Jon Condon, October 23, 2019

RECENT strengthening in feeder steer values have kept a handbrake on profitability in Beef Central’s latest monthly 100-day grainfed steer trading budget calculated this morning.

Using our standard set of variables (see list at base of page), we’ve arrived at a $47 loss on our typical 450kg feeder steer entering a downs feedlot today, and closing out after a 105 day program in February week-one next year.

Today’s outcome is $5 worse than our previous breakeven calculation carried out five weeks ago, but as described in more detail below, higher performing cattle remain on the right side of the ledger, in profit.

Feeders rise to 305c/kg

For this month’s budget, we’ve lifted our typical flatback heavy feeder ex Downs to 305c/kg, up 5c from our previous report back on September 16. There’s evidence in the market this week of trading anywhere from 300c to 310c, reflecting the general shortage of good heavy feeders fitting our designated spec, as the drought wears on.

Anecdotal evidence suggests there is no real sign of numbers on feed across the major downs feeding region backing off, in any significant way.

The last time the market reached 305c/kg for heavy flatback feeders was November last year, before rising to the peak of 310c last December, before backing off in January following the absence of any summer rain.

Some Darling Downs yards lotfeeders currently are fairly current for feeder supply, holding as little as week or two’s supply, while others with different strategies have been putting cattle aside, and are perhaps a month out, Beef Central was told by a key stakeholder.

What’s still clearly evident is the amount of backgrounding of lighter cattle that’s occurring in the primary yards, or in some cases under contract in smaller ‘outlier’ yards where cattle are transferred to the main feeding facility when they hit a certain weight – say 380kg.

Short-term cow feeding for up to 60 days also remains widespread, as a drought strategy (see earlier report). Provided they are fed for a minimum 35 days under the Grain Fed Finished regime, those cattle will be factored in under the quarterly feedlot survey, Beef Central was told.

At a purchase price of 305c/kg, it values our typical feeder this week at $1372, up $22 since September and heading towards the highest prices see in this eight-year data series.

Ration price unchanged at $460/t

While there has been some fluctuation – both up and down – since our September trading budget calculation, we’ve kept our representative finished ration price for today’s report the same as last month, at $460/t.

A $20/t rally in grain prices was seen soon after our previous September report, but that has since subsided, now on a downwards plane. Each feedlot’s grain position will have some bearing on offers, however, in the current market. Currently there are ration price offers in the market anywhere from $440/t through to $520/t, depending on positions.

With feedlot occupancy as high as it is across eastern Australia, there is now burning incentive for lotfeeders to sharpen their competitiveness by lowering margin on ration price, keeping prices higher than they otherwise might be.

One the basis of the above figures, we’ve calculated feeding cost this month at $720/head, and total production cost (feeder purchase plus feeding cost) at $2200, up $23 on September. That figure is similar to this time last year, when total production cost was $2216, based on a slightly higher ration price a year ago of $470/t.

Cost of gain in today’s calculation is 343c/kg, based on our standard steer gaining at 2kg/day. On a better gaining animal with an ADG of 2.2kg, the COG reduces to 312c/kg.

All this delivers a breakeven figure in today’s budget of 624c/kg on our standard 2kg/day gain steer, and 604c/kg on the better gaining cattle (2.2kg/day).

Forward contract slaughter price lifts to 610c/kg

Representative forward contract price offers out of southern Queensland grainfed processors for early February delivery are 610c/kg – a modest lift of 5c/kg on last month’s figure, but equalling this report’s record-high.

February and the end of summer is normally a period of tight supply from a Queensland processor point of view. Normally by that stage the market has found a level, after opening offers from processors after the Christmas break to try to define the new-season market.

Obviously the lower that processors can set the market at the start of the new processing season, the more head-room they have in price negotiation for the balance of the year. Having said that, processors continue to record solid margins on all slaughter cattle, underpinned by strong and diversified international demand, favourable currency, and continued strong slaughter cattle flows limiting the need to lift prices further.

What’s also evident this year is the expanding premium for HGP-free slaughter cattle over implanted steers, driven largely by China (HGP-free only). Grainfed and grassfed grids currently show premiums of anywhere from 30c to 50c/kg for non-implanted cattle – in some cases double what they were a year or 18 months ago. One exporter was offering 660c/kg on non-implanted 100-day cattle this week.

With today’s forward contract slaughter price for February at 610c/kg, a 624c/kg breakeven on our standard steer delivers a loss of $47 on the trading budget exercise for our standard beast gaining at 2kg/day ($5 worse off than last month’s report, due to the higher feeder price more than offsetting a little more revenue on the sell-side), while a better-gaining beast (2.2kg ADG), delivers a breakeven of 604c/kg, returning a small $20/head profit.

Forward contract cattle bought earlier

For grainfed cattle forward-bought back in late July, for slaughter this week, processors were paying 605c/kg on contracts, while the Queensland spot market this week for 100-day flatback cattle is also around 600-605c/kg. That suggests processors are this week neither better or worse off on cattle they forward-bought earlier, compared with than those being procured out of this week’s spot market.

 

Beef Central’s regular 100-day grainfed breakeven scenario is based on a standard set of representative production variables, ex Darling Downs. It is built on a feeder steer of 450kg liveweight, 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. Equally, there can be considerable variation at any given time in ration costs charged by different custom-feed service feedlots. Click here to view an earlier article on this topic. For a more specific performance assessment on a given mob of cattle, consult with your preferred custom feeder.

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