RECORD high forward pricing on 100-day grainfed slaughter steers has not been enough to offset higher feeder cattle prices in Beef Central’s latest monthly 100-day grained trading budget calculated this morning.
In our eighth monthly trading budget projection for 2019, our standard set of variables (see full list at base of page) based on a typical 450kg flatback feeder steer entering a Darling Downs feedlot today and closing-out after 105 days on feed in mid-December, has produced a negative $25 trading result.
That’s little changed from a $19 loss calculated in our last report five weeks ago, but considerably better than results seen for much of the past four years.
Apart from a brief spike in May last year, July and August are the two best outcomes seen since a period of positive profit back in 2015. The big difference in May last year, however, was that feedlot rations were still worth only 410c/kg, and feeders were worth 265c/kg.
Feeders rise to 300c/kg
For this month’s budget, we’ve priced our typical flatback heavy feeder ex Downs at 300c/kg, up 5c/kg since mid-July, reflecting fewer eligible heavy feeder cattle coming forward as the drought wears on. The market has been volatile, however, with prices evident in the market this week from 290c to through 310c/kg in places.
The last time feeder prices reached this level was in our trading budgets calculated in November and December last year (305c and 310c/kg, respectively), but then something happened: it stopped raining. At their peak around June 2016, feeders in this report sequence topped-out at 360c/kg.
The feeder market at present may be showing the effects of the end-of-year slowdown, however, because cattle entering feed pens now will be due for slaughter around the time export abattoirs close for their customary 2-3 week Christmas break, somewhat limiting demand. If there are 10,000 100-day grainfed export steers a week typically killed in Queensland, that means 30,000 less steers required from around the third week in December until the new season opens.
Secondly, a number of large feedlots have already gathered feeder cattle requirements around them for the next few weeks, which also impacts current demand and price.
Today’s feeder price values our feeder steer at around $1350, up $23/head on last month.
Looking back at this time last year, feeders were a little cheaper, worth 265c/kg, but finished ration prices were near record highs at $500/t. Now, the feeder price is 35c/kg higher, but some relief is seen in ration prices, currently quoted in downs feedlots at $460/t. Total production cost (feeder purchase plus feeding costs) a year ago was $2079, whereas today it is almost $100 dearer, at $2177.
But at the same time, currency today at US67.3c is a long way from the same time last year (US73.4c). That 11pc currency advantage, means a lot more profitability for export processors – especially when trim prices are taken into account. Lean trim that was worth around 580c/kg this time last year is today worth 715c/kg, driven in part by greater demand out of China.
Ration price unchanged at $460/t
While there has been some fluctuation in grain prices since our July trading budget report, we’ve kept our representative finished ration price the same for today’s report at $460/t. Each feedlot’s grain position will have some bearing on that, however, in the current market.
New season grain prices are coming under some pressure from January on, but with feedlots remaining as full as they are, and other commodity prices like cottonseed remaining as high as they area, it means ration prices are probably not backing-off as quickly as some customers might hope.
High feedlot occupancy also means lotfeeders offering custom-feeding services do not have sacrifice their margins in order to retain business. In fact while we have applied a $460/t price to today’s breakeven, some Darling Downs feedlots this week have ration prices north of $500/t.
One the basis of the above figures, we’ve calculated feeding cost this month at $720/head, and as stated earlier, total production cost (feeder purchase plus feeding cost) at $2177, up $23 on last month.
Cost of gain in today’s calculation is unchanged at 343c/kg, based on our standard steer gaining at 2kg/day.
All this delivers a breakeven figure in today’s budget of 617c/kg (+6c on last month).
Forward contract slaughter price hits record 610c
Today’s forward contract price offers for 100-day grainfed steers for December 12 delivery are 610c/kg – a new record high for this series, being 5c/kg better than last month’s projection, and 25c/kg higher than offers seen back in April.
That reflects continued strong international demand for grainfed beef from all markets, including China, and perhaps also carries some acknowledgement of recent currency movement favouring Australian exports, and a desire among processors to see feedlots remain full.
As discussed earlier, this new record forward price comes despite the tendency for grainfed prices to go a little soft approaching Christmas (this breakeven’s steers are due to die December 12), because of holiday plant closures reducing slaughter cattle demand.
With a forward contract slaughter price at 610c/kg in today’s report, a 617c/kg breakeven delivers a very modest $25 loss on the trading budget exercise for our ‘standard’ beast gaining at 2kg/day, while a better-gaining beast (2.2kg ADG), is about $43/head in profit.
Cattle bought earlier
For grainfed cattle forward-bought by processors back in May, for slaughter this week, they were paying 590c/kg on contracts, while the Queensland spot market this week for 100-day flatback cattle is marginally higher at 590-600c/kg. That suggests processors are this week perhaps $0-$35 a head better-off on forward contracted cattle bought earlier, compared with than those being procured out of this week’s spot market.
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.