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Losses still $104/head in 100-day grainfed trading budget

by Jon Condon, 13 July 2017

 

SHARP rises in feedgrain prices are the key focus in trading budgets for 100-day grainfed lotfeeding operations.

Beef Central’s latest grainfed breakeven calculation completed this morning clearly shows the impact that sharply rising grain price is having on the feeding proposition, and it’s only likely to worsen.

Quotes from traders have feed wheat ex Downs this morning at $325/t and feed barley $310/t, following recent weather developments and global grain price trends.

Looking back at a previous trading budget calculation using identical criteria (see full list at base of page) performed on March 24:

  • feeder steer prices back then were at 340c/kg
  • ration price had drifted slightly higher to $300/t
  • total production cost was close to all-time highs, at $2107 (it reached an absolute peak in our July 2016 budget of $2230)
  • the forward price on finished grainfed ox was 565c/kg in March, for July delivery

These variables resulted in a budgeted loss on cattle entering the feedlot on March 24 of $114 – equal to the worst result last year (September) when the breakeven was 612c and forward slaughter price was 580c/kg.

Since then, the young cattle market has been in decline after peaking in October (see this morning’s separate report on the EYCI threatening to move below 600c/kg).  Cattle numbers on feed also remain historically high, with anectdotal evidence suggesting little change since the industry’s March COF survey was taken, suggesting one million head on feed.

For today’s trading budget, based on a 450kg feeder steer entering a typical downs feedlot today, and closing out after 105 days in late October, we have applied a buy-price for flatback 450kg steers at 320c/kg liveweight, back 20c from the March budget outlined above. Feeders meeting our spec this week appear to be changing hands at rates anywhere between 310c and 320c/kg.

Weather is the big factor in that softening, along with normal seasonal turnoff, but another factor may be what these cattle will be worth come exit time in October.

Given the recent weakening in the slaughter cattle market, and the tightness in overall supply, the question is: Is that reduction in grid offers sustainable, or will processors be forced to lift rates for these cattle around exit time if spring seasonal conditions improve and supply tightens further?

A lot of people placing cattle in feedlot programs right now are evidently anticipating a fair rebound in September/October. Certainly Queensland can be very tight for slaughter cattle around late October exit-time, and this year will be worse than ever.

Today’s feeder steer at 320c/kg values him at $1440, whereas this time last year, the same animal was worth 360c, almost $200 a head variance in value.

Ration price leaps alarmingly

Ration price applied in today’s budget has leapt from $300/t in March, to $340/t today, with every likelihood of further rises ahead, given the lack of selling in the grain market today.

Pricing on ration in some yards may still reflect earlier, cheaper grain purchases, depending on grain positions, but ration pricing is inevitably likely to rise further, trade sources suggest. In simple terms, ration cost has not yet caught up with a grain prices, mentioned in our intro, that are on the march.

Today’s ration price at $340/t is the highest seen in around 18 months, since the extremes of $370-$380/t were reported in this series back in 2015.

On that basis, total feeding cost in the past three months has gone from $470/head to $530/head (up $60), but at the same time feeder price has gone from $1530 to $1440 (back $90), providing a substantial offset.

While it has risen, cost-of-gain is still relatively good at 254c/kg (+30c/kg), but compared with the live animal purchase cost at 320c/kg, is still relatively attractive. Earlier, some of the corporate operators were feeding cattle on beyond 100 days, not only to maximise the COG advantage, but also to deliver finished cattle over what was perceived to be a tighter supply period.

Total production cost (feeding, plus steer purchase) on today’s breakeven steer at $2079, is a little lower than our March calculation, when it reached $2107.

The breakeven figure on the calculation over the same three-month period has gone from 597c to 589c (-8c) today (see graph at top of page, plotting this series’s breakevens since 2014.)

Today’s breakeven figure remains close to the historical highs see at the back end of 2015 and mid-2016, when the breakeven reached an eye-watering 625c/kg on the back of near record high grain prices or feeder prices.

Forward slaughter cattle price 560c

For finished grainfed cattle exiting the yard late October, processor forward contracts are currently around 560c/kg, having shown gradual decline from around 580c over the past three months. Tough conditions in international meat markets means there’s likely to be some desire by processors to drop that rate further, but countering that will be the supply challenge.

One observer suggests processors may just have to bite the bullet and continue to bid up to attract a supply of grainfed cattle during the quiet September October period.

All that delivers a loss on today’s trading budget of 29c/kg, or the equivalent of $104 on our typical 356kg carcase. That’s a $10 improvement on March, but still up there among the worst results recorded in this series since 2011.

Alternative scenarios

For discussion purposes, here’s a couple of alternate scenarios on cattle that may perform a little better, either in the feedlot, or in terms of sale price:

  • If an owner had managed to secure a forward sale price 10c/kg above our quoted figure of 560c/kg, it still delivers a $78 loss figure in March, and $67 loss in cattle going on feed today.
  • Adding better feedlot performance on top of that (14kg consumption/day instead of 15kg, or the equivalent of 7:1 instead of 7.5:1) still makes the March loss $47, and July (exiting late October) minus $32.

Spot market comparisons

Looking at 100-day grainfed cattle heading for slaughter this week, that went on feed back in March, forward contracts written on those cattle four months ago were priced around 565c/kg (perhaps a little less for non MSA). In comparison, the spot market for 100-day cattle today for southeast Queensland slaughter is more around the same money. That suggests that processors are probably around breakeven on 100-day cattle bought earlier on forward contracts, versus those bought in today’s spot market grid.

 

US lotfeeding margins ease… but still contrast sharply with Australia

Meanwhile, US feedyard managers are watching currently large profit margins slowly shrink, as the market settles into a seasonal summer slide. Average feeding margins last week were reported Sterling Marketing at US$242 per head, US$43 lower than the previous week, and a whopping US$250 per head lower than a month ago.

The cost of finishing a US steer last week was calculated at US$1408 per head, which is US$200 less than the US$1608 a year ago. A month ago cattle feeders were earning US$490 per head, while a year ago profits were calculated at US$97 per head. Feeder cattle represented 73pc of the cost of finishing a US steer, compared to 75pc last year.

 

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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