Lotfeeders eye-off southern grain ‘imports’ as prices surge

Jon Condon, 23/01/2014


Skyrocketing grain prices are prompting Queensland feedgrain users to consider prospects of ‘importing’ stocks from southern Australian growing areas, where supply is plentiful and current prices are as much as $100 a tonne cheaper.

The effects of drought, combined with high feedgrain demand from the feedlot sector concentrated heavily in southern Queensland and northern NSW, has seen Darling Downs feedgrain prices hit more than $350 a tonne over the past week.

The last time the northern feedlot industry transported grain in any real quantity from other parts of the continent was 1996, when barley and wheat was shipped from as far as Western Australia and South Australia.

Veteran Darling Downs feedlot operator Kevin Roberts and his family own and operate the 15,500 head Sandalwood feedlot near Dalby, on Queensland’s Darling Downs.

Sandalwood, which is predominantly used for custom-feeding for other clients, has operated at capacity for the past 18 months, due to the onset of drought across large parts of Queensland and NSW. It is probably the feedlot’s busiest sustained period since the late 1990s.

“This year, there is still plenty of grain in Australia – we’ve just come off a 22 million tonne wheat crop and a 6 million tonne barley crop, and the grain industry will grow a million tonnes of sorghum, despite the drought,” Mr Roberts said.

“The problem is location of that grain. Queensland has a big deficit, and is paying a big price, market wise, as a result.”


$100 split between north and south

Export grain out of Adelaide currently was worth around $250 a tonne, while a well-known Victorian lotfeeder had recently paid $260/t for grain, all the way out to June, Mr Roberts said.

“In comparison, we got to $350 a tonne for downs wheat in the last week, and $340/t for barley,” he said.

Those reference prices represent the best part of a hundred dollar split between what northern and southern feedgrain users are currently paying.

Applying some assumptions from Beef Central’s fortnightly grainfed trading budget to illustrate the impact of the price difference on profitability, grain represents a 70pc influence on finished ration price. That means, all other inputs being equal, that if grain is $100/t more expensive in one area over another, finished ration price goes up by $70/t. On current variables, it drives a $285/t ration in the south up to $355/t in the north. To put it another way, Cost of Gain (the production cost to put on a kilo of bodyweight) goes from 213c/kg to 265c/kg.

The current Queensland grain price is the highest seen since a spike caused by global grain shortage around 2007, when grain prices went beyond $380/t.

Mr Roberts pulled no punches when he said the ‘greed factor’ had kicked in in northern grain pricing, because suppliers had the drought-impacted cattle industry at their mercy.

“Every feedlot is full, and we have cattle that have to be fed,” he said.

“Additionally, many feeder cattle are under-weight due to the drought, which means they have to be fed longer to reach market end-points, which is using even more grain.”

He said brokers and grain traders were “just going to keep hammering us, price-wise, while ever we work as individuals.”

That situation has sparked discussions among a group of large northern end-users about the prospect of large scale up-country importation of grain from southern growing areas.

While the proposal is still at an early stage, the objective would be to buy say 50,000 tonnes of grain in Victoria or South Australia, and ship it north by boat into Brisbane, or possibly rail into Moree, for distribution.

“We’re just not going to keep bending over,” Mr Roberts said.

“Groups of end-users think enough is enough, and the grain market will need to respond accordingly, otherwise up-country transfer of grain is on the table as a prospect,” he said.

He said at a $100/tonne price differential, the large-scale grain transfer prospect looked ‘very attractive.’

“There’s a lot of logistics yet to be dealt with,” he said, “but ‘the market’ has started to work.”

If a buying group was put together, southern grain could start arriving in Queensland within a matter of weeks.

“Nobody is suggesting that grain owners should not be selling grain locally for export price, plus a margin. But if they are going to gouge, because of the seasonal circumstances, we have to react to that,” Mr Roberts said.

“The important point is that there is not a physical shortage of grain in this country. It’s just location.”

The interest group is looking at two prospects:

  • bulk-loaded grain shipped around the coast to Port of Brisbane, for road transfer to end-users on the Darling Downs and elsewhere; and
  • freight-train delivery, using either bulk wagons or containers, to the northern-most rail-head on the ‘common standard gauge’ line to Moree, where handling facilities are present. Although further north on the common line, Boggabilla on the Qld/NSW border did not have adequate handling facilities.

“Containers will work in a rail application, but bulk looks better,” Mr Roberts said.

A typical trainload would cart 2000-3000 tonnes, meaning numerous consignments would be required.

If the uplift was to occur by sea freight, it was highly likely that the group would have to use an Australian-flagged vessel, being a domestic shipment project, which would add further cost.

The longer the drought lasted, the more likely the uplift was to occur, Mr Roberts said.

“I’m not worried so much about grain for January or February, but I want to know we’re not going to see the price of grain just keep advancing, if conditions stay dry.”

Having said that, he believed local grain prices had now found a level, falling a little since last Thursday. “We may have reached a ceiling; the cost of barley and wheat on Tuesday actually eased a little, for the first time since this price surge started back in November.”

Last week, wheat went from $335/t on Monday to $352 by Friday, before easing a little early this week.

“But how long that lasts is anybody’s guess,” Mr Roberts said.

Despite the slight easing trend in price early this week, the investigation into bulk grain uplift would not stop, he said.


Grain price hurts broader cattle industry

Mr Roberts said he hoped Qld Agriculture Minister John McVeigh would recognise and respond to the point that that current high grain prices were hurting not only lotfeeders, but the broader northern cattle industry.

“Because our Sandalwood feedlot business is mostly about custom-feeding cattle for other owners, you could argue that it makes no difference to us, personally, what the price of grain is,” he said.

“At the end of the day, as a custom-feedlot, somebody else is paying the bill. But it also means that my customers are getting absolutely spanked by those in control of the grain. Mr McVeigh needs to understand that,” he said.



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