TYPICAL feeder cattle entering an export grainfed program this week and closing out after 105 days next February would carry a small loss of $34 a head, Beef Central’s latest grainfed trading budget suggests.

Better ADG performing cattle gaining at 2.2kg would fare a little better, returning a modest profit of $40.

That’s a considerably better result than our previous trading budget published back in early June, when a $71 a head loss was recorded on average performers, with higher performance cattle closer to break-even. Prior to that, an earlier budget calculated back in February (closing out at the end of May) showed a forecast loss of $96 on the benchmark steer.

Our latest grainfed trading budget calculated this morning, using a standard set of variables since 2011 (see description at base of page) is based on heavy flatback feeder steers going on feed this week, and closing-out in mid-February after 105 days on feed in a typical Downs feedyard.

Feeder price

For today’s budget, we have applied a heavy flatback feeder price (ex Downs) of 355c/kg. As reported in Monday’s fortnightly feeder steer price update, large supply chains this week are typically 350-360c/kg on heavy flatbacks, delivered to Darling Downs yards.

The June budget feeder figure was 325c/kg. Feeder prices started the year strongly, hitting around 360c in late January before falling sharply to around 305c in March as southern conditions turned dry. Since then, prices rallied to around 380c/kg or a little higher, but have settled into a level around today’s figure over the past month or so, as supply has grown.

The view is that there will be adequate supply of feeders over the next few months, which may apply some downward pressure on prices heading into summer.

Ration prices

Cheaper feedgrain prices over the past month or two are now starting to reflect in ration p[rices being charged by custom feedyards, with $450/t the current mid-point, while still trending down.

Some yards are now factoring in cheaper grain coming into rations, but depending on their particular buying positions, ‘not necessarily today’ because of older stock on hand.

Five months ago in our previous trading budget, Downs ration prices were still being quoted at around $490-$500/t, with all ration ingredients remaining high. Some rations back then were still as high as $520/t, while others were back around $480/t, depending on performance.

Based on current grain markets, its looking like finisher ration prices will continue to drift lower, as older grain stocks are exhausted.

Cost of gain

The above figures suggest cost of gain on our benchmark feeder steer gaining at 2kg/day at 336c/kg – a hefty 30c/kg drop on our previous report in June.

With feeders currently quoted above at 355c, that COG again raises the issue of whether feedlots will opt for lighter cattle to feed on for a longer period.

“Unlikely,” was the response from one large downs lotfeeder. “It worked the last time COG fell below feeder price, but this time circumstances are different. Feedlots are already close to full, and with pretty solid demand from processors (see quotes below), they are keen to maximise turnover. That makes it less attractive to feed young cattle longer.”

“The other reason why anybody would feed on because of cheaper cost of gain is because they really don’t like the immediate outlook for finished cattle, and want to buy some time (potentially a month or two) for meat markets to potentially improve.”

A previous trading budget around June last year showed finisher rations at around $550/t, meaning cost of gain was closer to 400c/kg, showing how far the value has declined since then.

Breakeven 680c/kg

Based on the figures above, total production cost (feeder purchase, feeding cost plus management cost) is $2326/head, delivering a breakeven on our feeder steer of close to 680c/kg. In our February trading budget, that breakeven figure was a lot higher at 702c, but forward contracts on grainfed were also a lot higher back then.

Forward contracts on grain-finished cattle

Increasing numbers on feed (March and June quarters saw national cattle on feed hit new records, in June peaking at 1.4 million head), together with some flat international beef markets due to economic conditions and consumer spending has motivated processors to lower their bid prices on finished 100-day grainfed steer.

Forward contracts for February delivery in southeast Queensland are showing 670c/kg, down from 680c for January contracts.

At those figures, today’s trade on a steer of average ADG performance (2kg/day) would produce a $34/head loss, while for better performing cattle (2.2kg/day), the breakeven drops to 660c/kg, delivering a profit of $40.

The future

Looking forward, the optimists among us in the grainfed space see strong opportunity for chilled cuts into the US next year, as the North American beef herd begins its long, slow road to recovery. At the same time Australia will face less competition from US grainfed exports in key Asian markets like Japan, Korean and China.

Others point to the fact that the China market remains incredibly flat for Australian beef (price wise, rather than volume), and Japan and Korea are both labouring under tight economic pressures.

But everybody agrees that current prices are not going to get any cheaper into the US over the next couple of years. That’s being supported by the strong fundamental demand from Australian grainfed supply chains to maintain numbers on feed at high levels.

Some stakeholders are now anticipating another record cattle on feed number when the September quarter data is presented in a couple of weeks’ time. Part of that has been the gradual build-up in processing staffing levels over the past few months, accommodating a few more grainfeds as the year has progressed.

About the 100-day grainfed trading budget

Beef Central’s 100-day grainfed trading budget calculation is based on a standard set of representative production variables, ex Darling Downs. The calculation is built on a feeder steer 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. The trading budget should not be interpreted as a comment on the viability of the lotfeeding sector – it is simply a gauge of the exercise of buying feeder steers, sending them to a feedlot for custom-feeding, and then selling them at the expected grid price at a processor. The opportunity costs of the exercise can easily be misunderstood.