Lotfeeding

Lift in steer value impacts margins in latest grainfed trading budget

Jon Condon, 14/11/2012

 

A lift in feeder steer value in the past fortnight has pushed profitability back onto the negative side of the ledger in Beef Central’s most recent 100-day grainfed trading budget, calculated yesterday.   

The latest fortnightly breakeven has projected a loss of $18 for flatback steers entering the feedlot yesterday and closing-out on February 26.

While that’s down from a positive $5 trade a fortnight ago, and +$21 projected profit result two weeks before that, the result is still a long way better than some of the big losses logged earlier in the year. Feeding our benchmark 100-day beast was still a minus-$41 proposition towards the end of August, and at one point losses drifted towards $90/head. 

For yesterday’s trading budget, the prescribed flatback feeder steer buy price ex Darling Downs has been lifted 5c to 190c/kg. That’s based on the current expansion mood evident among many Downs feedlots, currently bidding a little more strongly to attract the right cattle.

In addition, the recent rain change has probably contributed a little to current supply patterns, but there are still feeders of the right description being offered in reasonable numbers.

The market is a little unclear about where the price sits, however. Some comparable cattle have changed hands at rates well below 190c in recent days, while others have made a little above that rate. Current feeder steer prices for all descriptions remain delicately poised, however, and much will depend on weather patterns in the run through to Christmas.

On the processor page, the additional cattle numbers on feed have meant a number of cattle have been committed for February, and into March, which has reduced the availability of contracts in that period. This may be contributing to a slight reduction in demand.

Yesterday’s breakeven steer value of 190c/kg prices him at $855, up $23 on two weeks ago, but still $112 shy of what it would have taken to buy him back in January – the high-point for the year for feeder price of $967.

Despite the influenced of new-season grain harvest, finished ration price has been kept at $285/t, representing a total feeding cost over 105 days of $446 on our trading steer, unchanged from a fortnight ago. Total production cost is calculated at $1394, a $20 rise on early February’s feeding budget figure.

Cost of gain, using our chosen variables (2kg/day ADG, for 210kg gain over 105 days) stays the same, at 213c/kg yesterday. This time last year, the cost-of-gain was 190c/kg on a 250/t ration price, about 10pc cheaper than today’s figure.

All the above variables deliver a breakeven yesterday of 395c/kg, dressed weight on a 100-day feeding exercise, up from 388c/kg a fortnight ago, due mostly to higher feeder price.

Current public grid prices from Southeast Queensland processors for February, week four, are around 390c/kg, representing a trading loss on the current proposition of minus-$18.

Strong feedlot performance evident

To be fair, this week’s trading budget result should, perhaps, carry a proviso, based on current strong feedlot performance.

Downs lotfeeders are currently reporting extremely good feedlot outcomes and stock respiratory health – fairly normal for this time of year. While Beef Central’s budgets are done on a standard 7.5:1 conversion, which we feel accurately captures the entire year’s average performance, there have been plenty of finished cattle closing-out recently that have done 10 percent better than that.

To illustrate this, we have recalculated yesterday’s figures, adjusting our standard ‘benchmark’ average daily gain figure of 2.0kg/day upwards to 2.2kg/day, which is not uncommon in recent close-outs for cattle matching our description, lotfeeders tell us.

The result is a quite dramatic $44 turnaround, shifting from an $18 loss to a $26 profit, based solely on gain performance.

In summary, recent feedlot performances may have been a little better than our budget has shown. Having said that, however, average annual performance is used for budgeting purposes like this, because that is what occurs through a full yearly cycle. That means while there are periods like this where cattle perform a little better than the average, there are also others where performance falls below the line.

   

Spot market position

Forward contracts on cattle exiting the feedlot today, and forward-bought in early August were around 390c. Breakeven on those cattle was around 400c, suggesting processors/traders are technically losing about $40/head on those cattle. However that result may have in fact edged a little into the black on some cattle, based on the recent better feedlot performance discussed above.

 

Evidence of more Indicus in pens

Another observation about current feeder cattle composition in Queensland has been a few more higher-content cattle being presented to the market, influenced primarily by the reduction in live export trade out of northern Australia.

That is having an impact on the market, and is likely to continue to do so, trade participants said yesterday.

Typically what is occurring is that feedyards are showing a willingness to quote on a mob that contains perhaps 20pc higher grade Indicus cattle, with the balance flatbacks, but generally won’t quote on big runs showing predominantly higher indicus. If they do so, they are applying significant discounts.

The presence of those higher content cattle within bigger mobs suggests there could be a higher proportion of cattle carrying some indicus content evident in feedyards currently, compared with a few months ago.     

Reports suggest there has been a quite significant lift in feeder placements in large southern Queensland feedlots over the past six weeks, but the trend may have started too late to be fully captured in statistics in the latest ALFA/MLA industry survey for the quarter ended September 30. The survey results are due out in the next few days.

 

  • 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. 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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