Lotfeeding sums edge close to breakeven

Jon Condon, 21/09/2011


Profitability in grainfeeding export cattle is now tantalisingly close, based on Beef Central’s latest breakeven calculation compiled yesterday showing a negative $4 trading result on 100-day cattle placed on feed yesterday and closing-out on January 3.

This is the most favourable result seen since the Beef Central website was launched back on May 11, and demonstrates a vast chasm of improvement since the ‘dark days’ of late May when a negative $90 figure was projected.

A gradual recovery towards lotfeeding profitability has been evident in the past two breakeven calculations, but the rate of improvement has now gathered pace.

Beef Central’s previous feedlot breakeven calculated three weeks ago suggested a figure of negative $25 on 100-day cattle (individual results may vary – see Beef Central’s standard chosen variables at bottom of page). The two projections before that in mid-August and late-July were negative $37 and negative $46 respectively.

The recovery has occurred primarily on the basis of improved forward prices for grainfed export cattle.

An analysis based on yesterday’s spot market for inputs suggested a breakeven figure of 386c/kg, dressed weight, for 100-day grainfed steers ex-Darling Downs, going on feed today and closing-out on January 3.

That’s up 9c from 377c in Beef Central’s similar analysis done three weeks ago – a 2.4pc increase in cost of production, primarily due to increases in feeder cattle and ration prices.

There’s been a 5c/kg rise in feeder steer buy prices since last time, now pencilled-in at 190c/kg.

That trend is clearly evident in the Queensland Cattle Market Index and Eastern Young Cattle Indicators, which have both moved sharply upwards since September 1. The EYCI over that period has risen 6.5c/kg to 404.75c yesterday.

Finished ration price has risen $5/t on the last calculation to $265t. There is a widespread expectation that feed cost will now start to decline, however, once the grain industry gets close to what looks like a bumper harvest, which can only put downwards pressure on price.

Total production cost was calculated at $1360, a 2.3pc rise from $1330 last time. That’s based on flatback feeder steer purchase plus typical feeding program, and a 1pc mortality rate in the yard.

Also having major influence on the outcome is the over-the-hooks forward market price for early January, which has been raised from 370c/kg to 385c/kg. That forward figure has lifted 45c from the low 340s back in mid-July.

The sharp rise appears to be due to a combination of season and cattle supply, and increasingly the more friendly A$, which has now dropped 8pc from recent highs touching US110c. It also reflects the historical high-point seen in the market through the back-end of the year, as finished cattle become harder to find before the new season.

Yesterday’s typical spot market quote for 100-day grainfed ox among southeast Queensland processors was around 355c. With forward-bought cattle purchased back in mid-May at 365c-370c/kg, our May 18 budgets included a breakeven of 388c, processors today are currently closing out losses estimated at of $30-$50 a head on May forward-purchased Jap ox.

While that might not sound good, it is a long way from the dark-days when processors were tearing up $150+ on forward purchased grainfed steers around mid-year. 

With high rates of cow slaughter in the US at present due to drought, leading to a likely shortfall in US beef supply around second quarter next year, are some stakeholders likely to again start looking at placing non-committed export cattle on feed?

Beef Central approached a large Queensland custom feedlot operator, who asked to remain anonymous, for a response.

His feedlot’s own breakeven for early January, using a slightly different set of variables, still shows a close-out loss for January closer to $20/head, but most importantly, he agreed with the general trend indicated in Beef Central’s calculation.

“But I can’t see non-committed cattle coming into the feedlot in numbers until at least next year,” he said. “There’s no margin left in it, given what people are paying for feeders. We certainly have cattle going on feed, but they are clients who are regular feeders and it is part of a program.”

The contact said the catalyst for change would need to be a lot higher demand for Australian grainfed beef in international markets than what was currently being seen.

“The concern some people will have is what happens next March when there are grassfed bullocks about – will the market for grainfed steers collapse again? The store market might come off the boil a little in the next few weeks, but it is likely to get very dear again around November/December. So there won’t be a lot of uncommitted grainfed cattle about. Store prices are still very dear; grain is not ridiculously dear, but is dear enough.”

“The key will be seeing processors wanting to kill closer to 80,000 head a week in Queensland. Once that happens, it means the underlying export demand is there, and when that is happening, processors need grainfed numbers to keep their kills going. But it’s not happening, yet.”

The weather might be another influence. Six weeks of dry weather now might stimulate a lot of cattle movement across eastern states, and push some cattle onto feed, but not in big numbers, he said.  

  • 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; average daily gain of 2kg; consumption 15kg and a feed conversion ratio of 7.5:1 (as fed); $25 freight; interest component. It is important to note, however, that variations can 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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