SCATTERED storm rain across parts of Eastern Australia over the past week has delivered the most dramatic turnaround in profitability we have seen in three-and-a-half years of reporting our 100-day grainfed trading budget.

From a net profit of $49 delivered in our previous budget calculated on November 26 (click here to view earlier item), today’s figure slides to negative-$65. That’s a $114 turnaround in fortunes in three weeks.

Aside from a slightly higher ration price, it’s almost entirely due to the sharp spike in feeder cattle prices in response to (or perhaps expectation of) the past week’s rain event.

The figures are based on Beef Central’s chosen set of variables (full list published at base of page) on buying a typical flatback 450kg feeder steer today, placing him on feed at a typical Darling Downs feedlot, and selling him after a typical 105-day grainfed export program towards the end of March next year.

For today’s budget, we’ve allocated a feeder price of 230c/kg, up 25c from 205c in our previous budget three weeks ago, and easily a record for this data-set.

There’s been clear market evidence of even higher prices in places over the past week, with feeder steers on Auctions Plus on Friday selling as high as 260c/kg, and comparable saleyard cattle at Dalby and Roma last week selling from 235-250c/kg in places.

Contributing to that rise, also, has been a general tightening in numbers of available feeders, leading into Christmas, pushing feedlots to ‘hang out a few cherries’ to secure replacements as pens empty out during the coming quiet three-week trading period. On top of that, the market ‘noise’ for next year remains extremely bullish, to say the least.

Today’s breakeven steer at 230c/kg values him at $1035 – the first time this report has cracked four figures, and exceeding the previous high-point of $967 seen back in January 2012.

The low-point in feeder steer price in this report series came in May last year when it reached 150c/kg briefly ($675), meaning the purchase price has risen $360 a head since.

Whether that price level can be sustained, or even advance further, will depend on one thing, of course: further rain to fill in all the blanks that remain on the map, and consolidate on the moderate to good start received in others.

 

Ration price lifts again

For today’s budget, we’ve lifted our typical ration price, ex Darling Downs custom-feedlot, by a further $10 a tonne (on top of $15/t three weeks ago), taking the figure today to $375/t.

That’s due to broader grain price trends, as well as continued solid feedlot demand for grain, as yards remain near full. Today’s figure is still a little below its recent peak of $385/t, recorded some months ago.

Full pens means there is still not a lot of competitive pressure on custom feedlots in terms of margin on their ration price offer to customers, but that is likely to change early next year, if there is further rain. Numbers on feed across Eastern Australia may now have peaked, and are likely to decline in the first quarter of 2015, if there is any rain relief at all.

Without any seasonal break, most feedlot commodity managers will stay hard on the grain buy, however, anticipating high occupancy levels to continue.

At the assigned ration price of $375/t in today’s trading budget, it represents a total feeding cost over a typical 105-day program of $587, up $20 on our previous calculation.

That delivers a total production cost (steer price plus custom feeding price, freight, interest, contingency, levy and induction costs) of a breathtaking, record $1723, up another $123 on last time.

Cost of gain, using our chosen variables (2kg/day ADG, for 210kg gain over 105 days) now sits at 284c/kg, up 12c/kg on the previous budget.

All that delivers a breakeven on today’s budget of 488c/kg, a 37c/kg leap on last time. Again that’s easily a record high for Beef Central’s regular report.

 

Forward pricing for GF ox hits 470c

Based on Southeast Queensland direct consignment processor quotes provided today, our forward price for 100-day flatbacks going on feed now and closing-out on March 31 next year, is at 470c/kg, up another 5c/kg from three weeks ago, but now 25c/kg higher than forward pricing seen as recently as mid-September.

Some SEQ specialist grainfed processors are understood to have as much as 475c/kg available for conventional 100-day cattle for kills late March next year, and +500c/kg for no-pill cattle. Such an attractive number perhaps suggests that SEQ grainfed specialist exporters are seeking to secure every grainfed beast they can, going forward, knowing that there is still plenty of margin left in the system.

This time a year ago, the breakeven figure was 413c/kg, and the forward price for March delivery was 400c/kg.

That means the current forward price level for finished grainfed ox at 470c/kg is still only 20pc above longer-term historic levels, or a 70c/kg rise (worth $246) on this time a year ago. At the same time any world beef price chart will clearly show price rises of 35-50pc for many export beef segments above long-term averages. And on top of that, the A$ has fallen US6c since this time last year.

So do processors have more in their pocket to spend on 100-day ox next year? You bet, and plenty of it. Our tip is grainfed ox will spend considerable periods next year well above 500c/kg.

Another tip: Spot market 100-day cattle will basically disappear next year, with all available cattle soaked-up in program business.

All that, as mentioned in our intro, delivers a trading budget outcome in today’s calculation of negative $65 per beast, down $114 since our previous report on September 26.

 

Today’s spot market

Looking back at 100-day cattle that went on feed back in September, for slaughter this week, their forward sale position was around 430c/kg, compared with the spot market for 100-day ox today at approximately the same price. That means processors are line-ball on spot market purchase currently over cattle secured forward three or four months ago.

Today’s spot market at 430c/kg is perhaps a little misleading, however, as it clearly reflects the continued extreme high numbers of cattle of all descriptions heading to slaughter. That’s having an overall dampening effect on grainfed pricing offers currently.

Without that supply pressure, the grainfed market today would probably be more like a 450-455c/kg price, in which case those cattle bought forward back in late August would have been 25c/kg in the black.

 

• This will be Beef Central’s final regular 100-day grainfed trading budget for 2014. The sequence will resume on January 12 next 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.