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Rising feeder prices push grainfed trading budget loss to $140

by Jon Condon, 02 October 2018

Composite steers on feed at NAPCo’s Wainui feedlot on the Darling Downs

 

RISING prices for feeder steers have counteracted an easing trend in ration prices in Beef Central’s latest 100-day grainfed trading budget, calculated on Friday.

While this year’s record surge in ration ingredient prices has served to drive recent trading budgets deep into loss territory, up until recently that was being moderated by softer feeder cattle prices.

Beef Central’s latest monthly 100-day grainfed trading budget, using our standard set of variables (see list at base of page) produced a loss of $140 – virtually unchanged from our previous report compiled towards the end of August.

The regular calculation is based on a typical flatback 450kg feeder steer entering a Darling Downs commercial feedyard on Friday, and closing out for slaughter after 105 days on feed on 11 January.

Friday’s result is not that far short of this report’s record $155 loss reported in February, when feeders were worth 280c/kg; ration price was $370/t; but most significantly forward-sell grainfed carcase price was just 500c/kg due to tough global meat trading conditions.

Feeder steers lift to 280c

For today’s trading budget, we’ve applied a feeder steer buy price (flatback steer, 450kg ex Darling Downs) of 280c/kg, up 15c on our previous late August budget. Having said that, there were bids in the market on Friday for feeders from 275c to 290c, due to the continued tightness of supply of suitable heavy feeders evident in the market. Patchy storms in some parts of NSW and Queensland are also having some bearing on the feeder market.   

Today’s feeder price of 280c/kg values our 450kg feeder at $1260, a $68 rise from late August prices.

Ration prices softer

While ration prices remain in uncharted territory, for this week’s budget we have lowered pricing a little, to $480/t.

Our previous budget five weeks ago included a $500/t ration price, but that was at a time when public opinion about the drought was fuelling sentiment. Cotton seed and some other commodities have eased in price a little since then, and coming into new season grain, with some central Queensland harvest in the past fortnight, there is a little more product available, a lot closer to home. The market for wheat of any quality ex-farm CQ was last week quoted at around $450 per tonne, compared with $465-468/t on the Darling Downs.

Ration quotes from Darling Downs feedlots on Friday were still in a broad range, as high as +$500/t in some cases depending on grain stocks, but $480 rations are more representative at present, Beef Central was told.

Today’s quoted ration price has pushed the total feeding cost per beast in our calculation to $752, up from $564 this time last year, before the big grain and commodities price surge started. That’s a big jump from our early July figure, when total feeding cost was still only $650/head, based on rations worth $415/t.

Cost-of-gain in our latest calculation is 358c/kg, down from the all-time record of 373c/kg five weeks ago when ration prices were $20/t higher.

All that gives a total production cost per beast (using the variables listed at the base of this page) of $2116, up $37 from our late August budget figure of $2079. Today’s figure is drawing closer to our record production cost of $2231, reported back in July 2016, when the projected breakeven figure was 632c/kg.

Breakeven 600c/kg

All the above variables deliver a breakeven in Friday’s latest budget on our chosen feeder steer of 600c/kg – 11c/kg higher than our last report in late August, driven by the rise in feeder price, as well as the persistent high ration prices.

Southern Queensland processors on Friday were offering forward contract prices for 100-day steers ready for slaughter early January of 560c/kg, up 10c from our previous report.

The forward price figure is edging up towards the all-time high in this series of 600c/kg seen back in July 2016, when supply got very tight. Processing margins apparently remain solid, rather than outstanding, with global demand and favourable currency movements helping maintain some momentum.

A 560c/kg forward slaughter price for mid-January delivery indicates a loss of $140 a head on today’s trading budget, virtually the same as our previous August calculation.

While our formula’s chosen average daily gain of 2kg/day represents ‘middle of the road’ cattle performance in Queensland feedyards, cattle gaining 10pc better (2.2kg/day ADG), will produce a considerably lower breakeven figure, and better profitability outcome. In this case, the breakeven figure reduces to 581c, reducing the trading loss to around $70. Elite performers gaining at 2.5kg/day would produce a breakeven figure of 556c/kg – more or less all square with the forward contract price for January.

Looking ahead for the next few months, it sets up an intriguing period for grainfed systems.

Processor margins are likely to continue to look attractive on 100-day cattle, suggesting the current 560c/kg forward price does not yet reflect meat prices. After a profitable trading period in recent months, processors are likely to want to stimulate flow of cattle, and will not want to see feedlots empty-out if there is widespread rain, suggesting both spot and forward contract prices could rise between now and Christmas, some market observers suggested.

While global meat markets were higher back then, at the peak of the market cycle in July, 2016, forward contacts on 100-day cattle got to 605c/kg. The A$ at the time was worth around US74c, not much different from where it sits today.

Spot price versus forward contract on current kills

The current spot market for 100-day cattle for southern Queensland slaughter is around 540-550c/kg, up substantially from 500-510c back in early July.

Looking at 100-day grainfed ox being delivered to processors for slaughter this week, if those cattle were bought on forward contracts back in early June, they were worth around 540c/kg, suggesting processors are currently no better or worse off in kills this week on cattle they forward-bought earlier, compared with today’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.



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